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HOW TO BUY 
LIFE INSURANCE 



How To Buy 
Life Insurance 



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By 

Q. P." 




NEW YORK 
Doubleday, Page & Company 

1906 






UBRARY of CONGRESS 
TwoCooies Received 

APR 28 1906 

^Copyright Entry 

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CLASS CI XXc. Ho, 

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COPY B. 



1 



Copyright, 1905, 1906, by 

Doubleday, Page & Company 

Published, April, 1906 



All rights reserved, 

including that of translation into foreign languages, 

including the Scandinavian, 



THE AMERICAN HUSBAND 

WHOSE FORETHOUGHT FOR HIS WIFE AND CHILDREN 

IS THE KEYSTONE OF LIFE INSURANCE 

THIS BOOK IS DEDICATED 



PREFACE 

IN bulk no subject has more literature than Life 
Insurance. Its printing bills exceed the cost 
of the government printing office in Washington. 
Its prospectuses, its pamphlets, its hand-books 
and its statements have been broadcasted every- 
where and have found their way to every home. 
There is no town without its active, keen life insurance 
agent presenting its manifold policies and attractive 
literature to the public. 

But all this is from the same point of view — the 
agent's and the company's, not the policy holders. 

It is time that life insurance was considered solely 
from the point of view of the policyholders, actual or 
prospective, regardless of the personal interests of the 
agents or officials. A necessary economic distinc- 
tion exists here. The policy holder is the source of all 
the revenues. The life insurance company produces 
nothing. It merely collects and distributes. What- 
ever it expends except in payments to the policy hold- 
ers necessarily comes from the money they pay in 
and to that extent diminishes what they receive. 



PREFACE 

There can be no "dividends" without a preceding 
overcharge. There can be no profits without some pol- 
icy holders paying them. There can be no salaries or 
commissions unless their amounts come out of the pre- 
mium payments or the investment receipts. 

No book can properly advise a policy holder in what 
company to insure or to what amount. It can only 
tell him the facts and put him in a position intelli- 
gently to decide for himself. 

The advantages of intelligent life insurance are 
likely to be overlooked in the present flood of disclo- 
sures of corrupt management. Such evils are a con- 
clusive argument against bad life insurance. They 
are no reason for not insuring at all. 
The author seeks to avoid both condemnation and 
eulogy and simply to present the facts and to empha- 
size the conclusions of his own mind that every man 
who has a family dependent upon him should give 
them that protection which sound, pure life insur- 
ance affords. 



TABLE OF CONTENTS 



Preface 
Chapter I. 
Chapter II. 

Chapter III. 
Chapter IV. 



Chapter V. 
Chapter VI. 
Chapter VII. 



Chapter VIII. 
Chapter IX. 
Chapter X. 



Page 

vii 



What is Life Insurance? 

Its Benefits and Defects — A 
Protection, not an Investment 

History of Life Insurance . 

Life Insurance Frills — What is 
Sold Under the Head of Life 
Insurance .... 

Who Should Insure and Why 
What Kind of Policy to Buy 
What Company to Insure In — 
Tests of Stability and Sol- 
vency ..... 
The Cost .... 
How to Pay It 

Explaining the Technicalities — 
Forefeiture and Lapses, Sur- 
render Values, Reserves, Sur- 
plus, Paid up Insurance, and 
other Insurance Terms Defined 130 



14 

27 



42 
56 
68 



90 
104 
117 



TABLE OF CONTENTS 

Chapter XI. Gold Bonds and Gold Bricks 142 
Chapter XII. The Agent .... 152 
Chapter XIII. Official Supervision and the Law 164 
Chapter XIV. Decide for Yourself — TheRights 
and the Duties of the Policy- 
Holder .... 172 



HOW TO BUY 
LIFE INSURANCE 



CHAPTER I 
What is Life Insurance ? 

INSURANCE is the agreement to pay a determina- 
ble sum on the happening of a contingent loss. In 
fire insurance this contingency is the destruction of 
property by fire. In maritime insurance it is ship- 
wreck or loss or damage by sea. In accident, bur- 
glary, lightning, plate glass and a dozen other forms 
of insurance the contingency required to make the 
payment eventuate is well understood and indisput- 
able in meaning. 

In like manner life insurance is and can be nothing 
except an agreement to pay a determinable sum on 
death. A pure endowment is no more life insurance 
than is an annuity, or a policy against loss by fire. 
It is in the varied departures from this essential de- 
finition that policies in scores of forms have been is- 
sued and called life insurance policies while the real 
life insurance was only part of the contract and us- 
ually not the most costly or even remunerative part. 
It is of course possible to combine in one contract life 
insurance and many other things. Accident insurance 



4 HOW TO BUY LIFE INSURANCE 

policies usually combine insurance against a variety 
of accidental happenings. To do this with a life in- 
surance policy is confusing both to the policy holder 
and to the beneficiary. The policy holder is unable 
to distinguish between the various benefits promised 
him, what is the cost of each and what are the advant- 
ages of each because they are all combined in one in- 
volved contract. It is thus necessary first to consid- 
er life insurance apart from its collateral or extran- 
eous contractual provisions. 

Insuring against the financial loss resulting from 
death is not modern. It is as old as insurance against 
loss by fire and by the perils of the sea. Originally 
the same companies sold all kinds of insurance. The 
modern prototype of this kind of general insuring is 
English Lloyds which sell insurance and indemnity 
contracts against all manner of losses arising from any 
possible contingency. Any one with an insurable in- 
terest can there contract for an avoidance of a contin- 
gent loss. 

This form of universal insurance by one company 
or association is not found in the United States. The 
law prohibits a fire insurance company from selling 
life insurance policies as it prohibits a savings bank 
from selling life insurance policies. The law should 
also prohibit a life insurance company from selling 
anything except life insurance policies, and probably 



WHAT IS LIFE INSURANCE 5 

in the course of time the same public sentiment in re- 
gard to public safety which has forbidden the com- 
mingling of property risks with personal life risks will 
also lead to the prohibition of commingling invest- 
ments with life insurance protection. 

In its economic effect insurance in whatever form 
is simply a distribution and equalization of the loss. 
When a man's property is destroyed by fire the loss 
which if it were not insured would fall upon him 
alone, is distributed by means of his fire insurance pol- 
icy. He has paid only his premiums and he receives 
an amount much in excess of what he has paid. The 
many more numerous individuals who have paid pre- 
miums and who have had no fire, pay his loss by 
their contributions. What they have received was 
not money but protection. 

No insurance company could long do business if its 
premium receipts did not exceed its payments for 
losses. In this respect life insurance does not differ 
from any other form of insurance and the principle is 
the same whether the company is mutual or stock, 
and whether the method of insurance is a fixed pre- 
mium, assessment, a changeable premium, fraternal 
or what not. The company is merely a means of col- 
lecting from the general community the funds from 
which to pay the losses and an additional amount 
sufficient for the expenses of conducting the business. 



6 HOW TO BUY LIFE INSURANCE 

Any insurance company of whatsoever nature con- 
ducted on any other plan than this must fail, and the 
frequent insolvencies of earlier companies which tried 
many other systems are proof of the folly of a further 
continuance of such fatally resulting experiments. 

Life insurance differs from most other forms of in- 
surance in the certainty that the contingent loss will 
eventuate. All men die. Every policy payable at 
death matures sooner or later. A man might go on 
paying premiums against fire for an indefinite period 
with no assurance that his property would burn. 
There is no assurance of shipwreck or accident or bur- 
glary or of the other contingencies for which compan- 
ies to insure against loss by them have been founded. 
Death, however, is a certainty. Also the nearness of 
that certainty increases year by year. The same pro- 
perty may be as good a fire risk ten years hence as it 
is today, but a man steadily year by year becomes a 
worse life insurance risk. The loss by death is also 
total. There is no argument in mitigation of dam- 
ages and no possibility of setting off salvage or an ap- 
portionment of losses or a similar claim in diminu- 
tion of the amount of payment. 

All these certain factors should make life insurance 
the most simple, intelligible and complete of all forms 
of insurance. They should make the facts of the nec- 
essary payments in the shape of premiums and the 



WHAT IS LIFE INSURANCE 7 

final returns to the policy holder's beneficiaries more 
exact and readily understandable than any other form 
of insurance payments. Yet the contrary is the fact. 
There are standard fire policies and maritime policies, 
but no standard life insurance policies. There is a 
standard classification of property risks but only in 
one or two companies is there a grading of life risks 
except the age gradations. 

Why life insurance is more complicated and less in- 
telligible, more given to dispute and bad feeling than 
any other form of insurance, it is not within the scope 
of this book to discuss in detail. The wrongs of the 
policyholders have been made public in successive ex- 
posures and public investigations until it may be as- 
sumed as proven beyond the need of further testimony 
or detailed argument that the policyholders in general 
have not received what they should, that they have 
paid too much for what they do get and that a new 
system of intelligent life insurance is bound to arise. 
To enlighten the policyholder so that his intelligent 
self interest may be the strongest compelling force in 
driving out of existence bad life insurance and in con- 
tinuing and increasing the volume of good, pure life 
insurance is in itself sufficient scope. 

It is thus essential that the policyholder or the man 
seeking protection for those dependent upon him after 
his death should keep clearly in mind the fundamental 



8 HOW TO BUY LIFE INSURANCE 

proposition that a life insurance company produces 
nothing and in no way adds to the wealth of the com- 
munity. No man can make a profit by insuring his 
life in the sense that the farmer produces a profitable 
crop or the storekeeper has a profitable year or the 
manufacturer makes a profit on the goods which he 
produces. There is no raw material to which labor is 
added to sell as a manufactured article. There are no 
crops. There are no trades or business enterprises 
with which life insurance properly has to do. Its in- 
vestment income will be considered in a further 
chapter. It is well however in preliminary to fix the 
definite s idea that the income from the investment 
returns on life insurance assets is only a moderate 
rate of interest on the higher premiums which the 
level premium policyholder pays in his earlier years to 
avoid the payment of higher premiums in his old age. 

As no life insurance company can continue solvent 
if its income does not exceed its death payments, so 
no life insurance company can continue in business 
unless its premium receipts and investment interest do 
not amount to a sum sufficiently in excess of its death 
payments to pay also the managing expenses of the 
company. That means that the policyholders as a 
class cannot receive back as much money as would re- 
sult from the investment in a savings bank of the 
same sums which they have paid in premiums. 



WHAT IS LIFE INSURANCE 9 

The delusion that life insurance is a profitable in- 
vestment has been fostered and falsely wide spread by 
the managers of the great companies which have pro- 
fited by deceiving their policyholders. Life insurance 
is not an investment. It cannot possibly be. It is 
a protection and like fire insurance protection or any 
other form of insurance protection it must be paid for. 
Its cost is the difference between what the premiums 
put in a savings bank at compound interest would 
amount to and what the policyholders receive. That 
difference in certain forms of insurance, such as indus- 
trial insurance, has been in practice over half and in 
some companies two-thirds or more. Even in the 
best and most honestly managed life insurance com- 
panies that cost has been over ten per cent, and it av- 
erages twenty-five to thirty per cent. 

The notion that any one can get life insurance for 
nothing is false and impossible. Any agent's state- 
ment or life insurance literature which pretends to say 
that under any form of policy; life insurance does not 
cost the policyholder a substantial sum of money, is an 
out-and-out falsehood. Sensible men who would not 
expect to get a suit of clothes or a book or food, or any 
other good thing, without paying its value, are deceived 
into the purchase of forms of so-called life insurance 
policies which in reality cost them several times as 
much for the life insurance protection as an honest 



10 HOW TO BUY LIFE INSURANCE 

policy, but which the agent or the company's litera- 
ture has deceived them into believing give them life 
protection without their paying any money for it. 

If this fundamental truth had been hammered into 
the conviction of every possible policyholder years ago, 
life insurance would long since have become as simpli- 
fied as fire insurance, and it is only by the general ac- 
ceptation of this fact that real life insurance reform 
can become permanent. 

Of the eighty million people in the United States 
one in five has some form of life insurance. The ag- 
gregate of this insurance is over fifteen billion dollars. 
The assets of the companies known as straight life or 
legal reserve companies amount to two and a half 
billion dollars, of which the three largest companies, 
The Equitable Life Assurance, the New York Life 
and the Mutual Life, all of New York City, hold about 
half in their treasuries. The people of the United 
States pay for life insurance every year over half a 
billion dollars. The total receipts equal the whole 
cost of the government of the United States, all its 
departments and all its branches. 

Although over half a billion dollars annually find 
their way from the savings of the policyholders to the 
treasuries of the life insurance companies, hardly half 
that sum is annually repaid to the policyholders or 
their beneficiaries. The expenses of management 



WHAT IS LIFE INSURANCE 11 

are about half the amounts which the policy- 
holders receive. The additions to the assets some- 
what exceed the expenses of management. The de- 
tailed figures for many of the companies are given in 
the statistical appendix. The general statement con- 
veys only an approximate idea of the magnitude of 
the business of life insurance. 

Should the accumulations of wealth by life insur- 
ance companies continue at the rate of the past five 
years, it will not be long before they will exceed in val- 
ue the railroad systems of the United States or the 
capitalized industries. They will be the largest ag- 
gregations of capital that the world has ever known. 
They are at present the largest aggregations of float- 
ing capital, that is of capital not tied down to one spot, 
like a farm or a factory or a railroad track. Their 
power will be all the greater because of their ductility. 

Of the different forms of life insurance companies it 
is only the companies which sell level premium poli- 
cies which accumulate vast assets. Assessment, fra- 
ternal and benevolent associations do a large insurance 
business, but where the premiums increase from year 
to year with the age of the insured,there is no occasion 
to accumulate a reserve approachable in size to the re- 
quirements of "investment" insurance. 

As explained above, life insurance in whatever form 
is simply the collection from the mass of the insured of 



12 HOW TO BUY LIFE INSURANCE 

sums sufficient to meet the annual death losses to- 
gether with the expenses of management. In an as- 
sessment plan the amount required to meet the death 
losses as they occur is levied upon the contributing 
policyholders together with an additional assesment 
for the cost of management. In the level premium 
companies the same premium is annually collected, 
the rate varying according to the age at which the 
policy was taken, so calculated that the amount of 
the premiums with the interest on the excess in the 
early years will be sufficient to pay all death losses as 
they occur together with the expense of management. 
Term insurance is payable only should the policy- 
holder die during the term for which the policy is is- 
sued. Its premium rate is either a level premium for 
the term of the policy in which case there is an excess 
charge during the early years, but not so great an ex- 
cess as in a straight life policy, or it is a rate increasing 
year by year in which case no reserve at all is required. 

Did life insurance policies contain no other promise 
than the agreement to pay a fixed sum should the 
policyholder die during the term of the policy, all these 
premiums, whether on the assessment plan or level 
premiums or term insurance, would be reasonably uni- 
form and regularly understood. But it is only a 
minority of policies which do not contain other pro- 
visions, promises and alternatives. Every one of 



WHAT IS LIFE INSURANCE ? 13 

these which does anything else than insure against 
death adds to the cost and complications. 

Although individual life is most uncertain, the law 
of averages enables the accurate knowledge of the 
time of death of the average man. A million men 
picked at random die with mathematical precision at 
their appointed times. It cannot be predicted what 
individuals will die and when, but it can be definitely- 
concluded how many individuals out of the million 
will die at the age of 21, or 40, or 60, or 90. The dura- 
tion of human life has been slightly increasing, and 
from the period of one generation to the other the 
deaths at certain ages vary somewhat, but the varia- 
tion is not great and its mathematical determination 
is definite. 

The causes of death have changed much more than 
the number of deaths. The prevention of contagious 
diseases has almost eliminated death from such plagues 
as swept the civilized world m the middle ages, 
but the deaths from nervous and brain diseases have 
increased. The strain of modern life has supplied new 
diseases to kill men off almost as rapidly as the hard- 
ships of pioneer life. Nature still clings to the scrip- 
tural period of three score years and ten. The most 
intricate actuarial tables give the average young man 
of 21 almost the same span of life that the Old Testa- 
ment allots to him. The variation is only fractional. 



CHAPTER II 

Its Benefits and Defects. A Protection/ not 
an Investment. 

FINANCIALLY considered, life insurance in itself 
can do only one good thing and that is to pay 
the amount of the policy to the beneficiaries of the 
policyholder at his death. It has other benefits of 
great value which are not included in the policy and 
which cost the policyholder nothing. These are the 
moral and physical habits which life insurance im- 
proves. Men who insure their lives are as a class 
more moral, more thrifty and more healthy than the 
average of the community. The same family affec- 
tion and forethought which induced them to take out 
life insurance also tends to make them better husbands 
and fathers and better citizens. This is not the ex- 
clusive result of a life insurance policy, because reg- 
ular savings invested in a home or put in a savings 
bank or regularly laid aside in other ways for old age 
also inculcate habits of thrift and economy. But 
in life insurance there is the more unselfish motive of 
personal deprivation for the sake of the loved ones 
after their support is gone than in the maintenance of 



ITS BENEFITS AND DEFECTS 15 

a fund which can be drawn upon and returns an in- 
come during life. 

It is on these moral and personal grounds that the 
strongest arguments in favor of life insurance are 
based. Considered solely as an investment, life insur- 
ance would have little argument in its favor compared 
with savings banks, mortgages or conservative 
stocks and bonds. As a protection there is every rea- 
son for the purchase of a life insurance policy, not for 
its interest returns or for profits, because there can be 
no interest returns or profits relied upon, but simply 
and solely because it protects dependent women and 
children from being left without support when the 
mainstay of the household supplies is taken away. 

The average man of the age of 21 will live at least 
40 years. At 30 his expectation of life is over 35 
years, at 40 over 28 years, at 50 over 20 years, and at 
60 he may still expect to live 14 years longer. If all men 
were the average man, and if every man were to live 
the exact number of years and die at the exact time of 
the average man, to buy a life insurance policy would 
be a waste of a large proportion of the money paid for 
it. If every man had a definite assurance that his 
life would be of the average length, life insurance 
would have no such strong occasion for existence. 

Of any number of men taking out policies at any 
given age a certain proportion of them dies the first 



16 HOW TO BUY LIFE INSURANCE 

year, a little larger proportion the next year, and the 
percentage of the survivors dying every year gradually 
increases until after seventy the proportion of deaths 
is ten times as numerous as in youth. The men who 
die in early life receive their full life insurance. The 
amount paid their beneficiaries is the same as if they 
had lived fifty years and paid in fifty premiums in- 
stead of one. The payments are the same to all. 

It is erroneously asserted in some life insurance 
literature that these men who die early and whose 
beneficiaries receive a sum many times the amount 
of their premiums, have profited by their life insurance. 
As well might it be claimed that the man whose house 
burned down and who received his fire insurance had 
profited by the fire. The life insurance policy holder 
is dead when his policy matures. There can be no 
profits to him. To claim that there is a profit to his 
wife and children is to put a lower value on his life 
than the face of his insurance policy and to assert that 
the number of dollars which his family has received 
is better for them than to have their husband and 
father alive with them contributing financially to 
their support and adding happiness and comfort to 
their lives. 

Life insurance is a benefit. That is indisputable. 
But so long as it is payable only on death it can not 
accurately be called either a profit or an investment 



ITS BENEFITS AND DEFECTS 17 

return. It is an essential feature of all insurance 
that under no circumstances shall the insured profit 
by the loss which causes the policy to mature. No 
fire insurance company will knowingly pay a larger 
amount than the actual financial loss by fire. No 
maritime insurance or burglary or property insurance 
company of any kind will contract to make the trans- 
action profitable to the policyholder. Neither can nor 
does life insurance make any such contract. The num- 
ber of policies whose amount invested would return a 
larger income than the annual premium are many, but 
the policyholders who have policies which would re- 
turn a larger income than their total earning capac- 
ity are almost nil. No man can buy more life insur- 
ance than he can pay for. No man can regularly pay 
for more life insurance than his surplus income over 
his living expenditures will meet in annual premiums. 
This inevitable limitation reduces the amount of life 
insurance possible in any individual case to the policy- 
holder's income or earning capacity over and above 
the necessary expenses for his and his family's sup- 
port. 

Thus the amount of the insurance on any man's 
life cannot, when extended over a series of years, ex- 
ceed his saving capacity. Life insurance therefore, 
cannot replace earning capacity but saving capacity, 
and its receipts cannot compensate the widow and 



18 HOW TO BUY LIFE INSURANCE 

orphan even in the limited financial sense for the loss 
which is necessary before the death payment matures. 
What life insurance should do and can do as no- 
thing else can, is to guarantee the continuance of the 
policyholder's saving capacity no matter whether he 
dies the next day or the fiftieth year after taking out 
his policy. No investment can do this. No man can 
invest more than he has. Investment is only a trans- 
formation of capital from a transitory to a more per- 
manent form. When a man takes money out of his 
pocket and puts it in a savings bank, its amount is not 
increased but its form is changed. It ceases to be cash 
money and becomes instead an interest in a real estate 
mortgage, a city bond or other safe and conservative 
security in which it has been invested through the in- 
strumentality of the savings bank officials. As an 
investment it begins at once to earn money. Its 
amount increases every year, while if it had been hid 
away in a box or continued in its owner's pocket its 
amount would have continued the same. How great 
and constant this investment increase is, the com- 
pound interest tables printed in the statistical ap- 
pendix give in detailed figures. 

Any man making an investment knows the amount 
which his investment costs him. That was a nec- 
essary preliminary to making it because he had to pay 
out his money before he had the investment. What 



ITS BENEFITS AND DEFECTS 19 

he does not know is how much his investment will 
bring him in. The more conservative and safe the 
investment the more exactly he can figure out its val- 
ue at any definite time but no man can even approxi- 
mately predict what his investments will be worth on 
the day that he dies. Both the day of his death and 
the value of his investments on that day are uncer- 
tain. 

On the other hand, the man who has a life insur- 
ance policy knows the exact amount which it will pay 
when he dies, but he has no means of knowing how 
much the policy will cost him. Even in the extreme 
case of his buying a life insurance policy by the pay- 
ment of one premium in advance, he will not know 
what the policy will cost, because though he knows his 
initial payment, he has no way of knowing what that 
payment compounded at interest will amount to on 
the day of his death. 

It is essential in studying the many forms of life in- 
surance policies and the many ways of paying for 
them that this important fact should be constantly 
kept in mind that life insurance is not an investment 
but a protection. A life insurance policy is the op- 
posite to an investment in its uncertainties. An in- 
vestment is the opposite to a life insurance company 
in its benefits and defects. Each of them is a good 
thing. Every man should have both. If having both 



20 HOW TO BUY LIFE INSURANCE 

he is forced to sacrifice one or the other, let the sac- 
rifice be of the whole or part of his investments and 
let the retention be of his life insurance policy. The 
investments he may be able at some future day to re- 
place at the same or less cost price than he received 
for parting with them. A straight, honest, life insur- 
ance policy can never be replaced at the same price 
and on the same terms. An investment deals with 
the security in which the investment is made. A life 
insurance policy deals with the life, health, and the 
age of the policyholder. 

No investment can give equal protection for the 
same cost as life insurance. No life insurance policy 
can give the same investment returns as a savings 
bank. In other words there is no substitute for life 
insurance. There is no equal way in which a man 
who has any one financially dependent upon him can 
protect his dependents against want after his death. 
The protection which life insurance alone affords has 
no substitute. 

The defects of life insurance are two fold. One is 
inherent and unavoidable. The other can and should 
be avoided. The first is the inevitable fact that the 
average man must pay more for his life insurance 
than the face of the policy. The second is that its 
workings have been so perverted in some com- 
panies, especially the three largest and a few of the 



ITS BENEFITS AND DEFECTS 21 

smallest, that it has been a robbery of the policy- 
holder, extortionate in the charges for most forms of 
policy, deceptive in its promises, delusive in its small 
type policy provisions and not giving the policy- 
holder the protection to which he was entitled. It is 
the main object of this book to lay the facts before the 
policyholder so that he may buy life insurance pro- 
tection at as near cost as it can be properly sold, and 
that he shall not be deluded or confused in making 
his selection and his purchase. 

Life insurance protection does and should cost 
something. No man expects to get protection against 
loss by fire without paying for it, or clothing to pro- 
tect him from the cold without paying his tailor, or a 
home to shelter him and his family without paying for 
that. Neither should he expect to get life insurance 
on an investment basis. It costs money to have a 
doctor examine him and officials to manage the affairs 
of the company and for printing, stationery and office 
rent. Even if the agent received no commission, the 
other necessary expenses would not be inconsiderable 
and the policyholder should pay them. Nobody else 
will or does and the policyholder might as well rec- 
ognize that whatever his form of policy these expenses 
are included. Also necessarily, they are proportion- 
ately larger than the cost of handling the same amount 
of money in a savings bank or a trust company or a 
building and loan association. 



22 HOW TO BUY LIFE INSURANCE 

The other defect of present day life insurance is 
much more serious. It consists of a lack of square 
dealing with policyholders. The fault cannot be con- 
centrated upon the agent or the management although 
both are at fault. Possibly the policyholder is more to 
blame than either because it is in the rarest instances 
that the policyholder has exercised the same judg- 
ment and care in buying life insurance as he would in 
buying a house or in making any other permanent 
provision for his family. The man who buys a home 
to shelter his family both during his life and after his 
death spends time and care and thought. He looks 
into its provisions both for the present and the future, 
its present cost and its future value, the probability 
of repairs, the kind of cellar it has and foundation 
walls, whether it heats easily, the plumbing, the roof 
and all the details. He considers the nature of the 
neighborhood and the tax rate. He talks it over with 
his wife and friends. 

A life insurance policy is fully as important as a 
home, and yet how many men give its choice the same 
consideration, instead of taking whatever policy the 
agent may advise, governed largely in his advice by 
the size of his commission. The agent should be 
little more blamed for this than the shopkeeper who 
tries to sell the goods which bring him the most profit 
or the real estate agent who spends extra effort in push- 



ITS BENEFITS AND DEFECTS 23 

ing a sale of property when the owner has promised 
him a bonus besides his ordinary commission. 

The loss by death cannot be altered without an in- 
crease in longevity by the mass of policyholders. The 
waste by bad management, extravagance and pecu- 
lation can be almost entirely done away with if policy- 
holders will exercise their ordinary business powers of 
discrimination and refuse to buy any form of policy 
which permits a deviation on the part of the officials 
or the management from strict accountability to the 
policyholder and honest contractual relations with 
him. 

Bad management can be no more entirely obviated 
in life insurance than in any other business. A sav- 
ings bank may be mismanaged and fail. The offi- 
cers of a building and loan association may be in- 
competent or dishonest to the loss of its members. A 
manufacturing corporation, a railroad, a store, busi- 
ness of any kind may be brought to failure by the lack 
of judgment, intelligence or moral principles, on the 
part of its managers or their subordinates. Life in- 
surance should be just as liable to loss from dishon- 
esty or mismanagement as a savings bank, but no 
more liable. 

The greatest defect of the present life insurance 
system is that mismanagement can continue longer 
without insolvency or detection than in a savings bank 



24 HOW TO BUY LIFE INSURANCE 

or in ordinary business concerns. A savings bank de- 
positor can draw out his money with interest on rea- 
sonable notice. The interest is credited annually or 
semi-annually and any failure to earn it is at once re- 
flected in the public statements unless the exam- 
ining officials perjure themselves. Neither dishonesty 
nor gross misconduct can be long continued without 
detection where there are strict accountability, public 
statements and honest, thorough supervision. So 
long as a savings bank has its assets unimpaired the 
depositors are safe. So long as the security of any 
investment is good the investment holder is safe. 
But life insurance, not having the essentials of an in- 
vestment has been conducted without the safe guards 
imposed upon all investment enterprises. 

A life insurance company's solvency is determined 
by its ability to pay its policies when they mature. 
No life insurance company could ever possibly pay its 
policies if all its policyholders were to die the same 
year. Neither could any fire insurance company pay 
its losses should all the property which it has insured 
be destroyed by fire the same year. Nor could any 
maritime insurance company, or any other insur- 
ance company, meet all its obligations should 
they all mature at once. Provision in all forms 
of insurance is made for the policies maturing 
approximately as the experience of the past has shown 



ITS BENEFITS AND DEFECTS 25 

that past policies mature. A great fire like the 
Chicago or Baltimore or Boston fire causes the failure 
of many fire insurance companies. A great and uni- 
versal plague such as swept over Europe in the Middle 
Ages would cause the failure of almost every life in- 
surance company of the United States, should such a 
calamity occur today. The greater assurance and 
certainty of life insurance over all other forms of in- 
surance is that while there have frequently been great 
conflagrations or extensive shipwrecks or great acci- 
dents, there has never been since life insurance began 
a plague or a series of unexpected deaths sufficient in 
number to cause life insurance companies to fail. 
There have been many failures of life insurance com- 
panies, but none of them has been caused by plague; 
but because their plans of insurance were wrong, their 
premiums were not properly adjusted and their man- 
agement was either incompetent or dishonest. 

The length of selected human lives is gradually in- 
creasing over what it was when life insurance began. 
The greater longevity of the holders of life insurance 
policies over the average man is remarkable. And it 
is a curious commentary on the old saying of a sound 
mind and a sound body, that the policyholders who 
have shown their . business acumen by taking out 
the best forms of policy and buying the most 
life insurance protection at the least cost, have 



26 HOW TO BUY LIFE INSURANCE 

the lowest mortality rate. The men who have been 
persuaded to buy wasteful policies in mismanaged 
companies, taking deceptive literature and agent's 
statements instead of their own investigations die, as 
the statistics prove, at a more rapid rate than the 
more thoughtful and careful investigating policy- 
holders. The man who displays a lack of wisdom and 
judgment in buying life insurance is likely to dis- 
play a similar lack of wisdom and judgment in the 
care of his own health and the prolongation of his 
own life. 



CHAPTER III 

History of Life Insurance. 

IN the year 1706 the first life insurance company was 
incorporated. By royal charter the Amicable Soci- 
ety of England was authorized to do a business in 
insuring lives. There had been before that something 
like modern assessment and fraternal insurance, cor- 
responding more closely to the death benefits paid by 
trade unions or exchanges, than any other form of 
present day insurance. Contributions were collected 
from members of the trade guilds and merchants , 
associations which were used to help their unfortunate 
fellow members in sickness or business calamity, and 
also to succor their families in case of their death. 
These friendly contributions lacked a system and were 
more in the nature of charitable contributions than 
a payment in fulfillment of a contract of obligation. 
The Amicable Society started out to insure lives 
with some sort of system. All the members paid a 
fixed contribution annually. At the end of the year 
the expenses were deducted and the balance was di- 
vided evenly among the families of the members who 
had died during that year. The same contribution 



28 HOW TO BUY LIFE INSURANCE 

was exacted from all members regardless of their age 
or health or financial circumstances, and the distri- 
bution was made on a simple arithmetical basis. 

This plan did not continue long before the younger 
and more vigorous members felt its injustice to them. 
Their prospect of life was better than of the older 
members and the assurance of their receiving back 
for their families something like what they had paid in 
was most remote. But while this injustice was felt, 
there were no data or statistics at hand on which to 
base a more equitable system, and it was a number of 
years before any radical alterations in this plan were 
made. The first change was to pay the beneficiaries 
an equal fixed amount. Some years there were more 
deaths than other years, which made the amount of 
payments uneven. The fixed payment was estab- 
lished and the surplus was carried over from year to 
year to meet the contingency of a year with a high 
death rate. 

This system of insurance has its counterpart today 
in assessment and fraternal insurance, although pres- 
ent day assessment insurance does make a distinc- 
tion between members of different ages. The New 
York Stock Exchange and the Produce Exchange 
insured the lives of their members in almost identic- 
ally the same way as the insurance of the old Amica- 
ble Society. The member of the stock exchange who 



HISTORY OF LIFE INSURANCE 29 

dies has paid over to his estate a lump sum regard- 
less of his age or of the payments which he may 
have contributed. 

After the Amicable Society had been going on for 
some years two other insurance companies, the Royal 
Exchange and the London Assurance received char- 
ters to do a general insurance business which included 
life insurance. They sought to find some basis of ap- 
portioning the premium charges. Discrimination 
was made in favor of young and vigorous lives and 
higher rates were charged older men. Life insurance 
was only part of the general insurance business of 
these companies. It was not until 1762 that the first 
life insurance company on modern lines was estab- 
lished. That is The Society for Equitable Assurance 
on Lives, otherwise known as the old original Equi- 
table, from which the name was taken of the present 
Equitable Life Assurance Society of New York. 

The old Equitable of London continues to do busi- 
ness today. It has no agents and pays no commis- 
sion for business. It is conducted more like a savings 
bank than a modern life insurance company. It has 
its offices and any one who desires to have it insure his 
life can call and submit to a medical examination If 
he is regarded as a gilt edge life insurance risk, the 
policy is issued to him; if not, he is rejected. Only 
excellent risks are taken as the society is managed for 



30 HOW TO BUY LIFE INSURANCE 

the benefit of the old policy holders and to take in a 
bad risk would be at their expense. For some years 
the old Equitable declined to issue any policies at all. 
It has such large assets in proportion to its insurance 
liabilities that there is a large element of the policy- 
holders who favor letting things stand as they are and 
not adding to the risks. This element of the society is so 
strong that two-thirds of the expenses of ordinary 
life insurance companies have been dispensed with. 
A fuller statement of the old Equitable is given in a 
subsequent chapter. 

The old Equitable first used a mortality table ac- 
cording to the judgment of its own officials, based 
on London's death rate, and then later adopted what 
is still known as the Northampton Mortality Table. 
This was a compilation made by the Clerk of North- 
ampton of the deaths in that parish between the years 
1735-1780. The parish clerk of those days kept vital 
statistics somewhat analogous to those kept by Munic- 
ipal Health Departments today. He took the annu- 
al number of births and applied that to the population 
to determine the birth rate and then he checked off 
the ages at which people in the parish died, as a basis 
for his calculations of the death rates at different ages. 
A similar table made in Carlisle in 1787, was used for 
purposes of comparison. 

These tables were imperfect because the number of 



HISTORY OF LIFE INSURANCE 31 

cases under observation was not sufficient to give an 
extensive enough basis for the law of averages to equa- 
lize itself. The law of averages is that the greater 
the given number of incidents, the computations there- 
from made will more accurately foretell future hap- 
penings. That is, that while a coin tossed a few times 
•might show more heads than tails, the more often it 
is tossed the more likely will it come up heads or tails 
an equal number of times. 

These observations were necessarily based on the 
continuance of human health and longevity at the 
same percentages in the future as in the past. The 
object of the data was only to find out what they had 
been in the past. The assumption was that they 
would continue the same in the future. This North- 
ampton table grew into the common law of England 
and was imported into the Common and Statute law 
of the United States. It was until recently almost 
universally used by the courts as the basis for com- 
puting the value of life estates, remainders, annuities 
and the like. It is still so used in some states although 
it has in recent years been supplanted by the Ameri- 
can Experience Table which is a more recent compila- 
tion based on a great number of American lives. 

The old Equitable added a safe margin to the life 
insurance rates which the Northampton table indi- 
cated in order to be sure to be on the safe side. The 



32 HOW TO BUY LIFE INSURANCE 

plagues of the 17th century had not been so long past 
that the original life insurance managers fell it safe 
to count always upon a normal death rate. These 
rates have, however, been materially reduced since, 
as the experience now o( a century and a half has con- 
tained no years of material excess. 

The principle on which these first life insurance rates 
were computed was simple. If of a thousand men at 
the age of 21, ten were computed to die within the 
year, the amount necessary to be contributed by each 
of the thousand to pay one thousand dollars to the 
beneficiaries of each of the ten who die, would natur- 
ally be $10, or one per cent, of the face of the policy. 
As the number of deaths increased every year the 
amounts to be paid to meet the death losses also in- 
creased. There was a double increase here. After 
the first year there would be only 990 to pay the death 
losses. There would be more deaths so the contri- 
bution from each should be say, as eleven is to 990 in- 
stead of as ten is io 1,000. The method of computing 
premium rates will be more extensively treated in a 
succeeding chapter. It is referred to here to explain 
the reason how as the business of life insurance be- 
came more extensive and more popular, the systems 
oi insuring branched out in different channels. 

The obvious difficulty with this system of insuring 
by annual contributions was that gradually the mini- 



HISTORY OF LIFE I INCE 

ber of the insured diminished and the annual oof 

their insurance increased disproportionately to their 

numbers. If the number of insured in any class 

should become too limited, the burden of meeting the 

heavy annual mortality contributions might 

the financial ability of some of the members. The 

last dozen survivors would have only th 

levy upon and the last survivor, after having paid his 

share of the mortality loss through the deaths of the 

other 999, would have nobody to pay anything to his 

heirs. 

This was obvious from the first, and it was met by 
continually insuring new lives which in their turn 
kept up the chain of payments. Safer than this, how- 
ever, was the system of charging a graded premium 
which would be more than sufficient to meet the an- 
nual mortality of the early years and would provide 
by excess payments in youth for the excess demands 
of old age. The assessment premiums consisted of 
only two factors, the annual mortality cost and the 
expenses of conducting the business in which were 
included the profits to the managers in case it was a 
stock company. A stock company can, of course, 
make profits for its stock holders through selling life 
insurance at a higher price than life insurance costs, 
just as a boot and shoe factory can make profits by 
selling boots and shoes at more than the labor and 



34 HOW TO BUY LIFE INSURANCE 

material costs. Nobody, though, in an insurance 
company, except the officials and the stockholders, 
can make profits. The insured certainly can not. 

Life insurance began in the United States about 
the same time as in England. The oldest company 
in the United States, the Presbyterian Ministers' 
Fund of Philadelphia, was founded in 1759, slightly 
antedating the old Equitable of London. This com- 
pany still continues to do a prosperous business. It 
insures the lives of Presbyterian ministers and does not 
take general risks. Its whole number of policies in 
1905 was 6,277 averaging in amount $1,491. Its net 
cost of insurance is said to be the lowest in the United 
States. This is attributed in main part to its careful 
management, but also to the high grade of its risks. 

The oldest of the general life insurance companies 
is the New England Mutual of Boston, which began 
in 1835 and still does a large and prosperous business. 
The Mutual Life of New York is the oldest of New 
York Companies dating from 1842. The Mutual 
Benefit of Newark, founded in 1845, is the oldest of the 
New Jersey Companies, and the North Western Mut- 
ual of Milwaukee, founded in 1857, is the oldest of the 
Western Companies. 

Present day life insurance in the United States thus 
dates from the forties. The earlier companies were 
named after their respective States, and were all 



HISTORY OF LIFE INSURANCE 35 

mutual. The stock companies came into existence 
later, the Equitable of New York, founded in 1859, 
being one of the first. 

These companies increased rapidly in number until 
the early 70s, when they were more numerous than 
they are today. The panic of 1873 and mismanage- 
ment brought about the failure of many of these com- 
panies, although it is probable that sooner or later a 
great part of them would have failed anyhow. Some 
of them were mushroom organizations, many of 
them did not properly arrange their premium rates 
and their financial mis-management led inevitably 
to insolvency. 

Almost all of the original companies continue in 
business today. Many of them have been wisely and 
conservatively conducted. Others have indulged in 
speculation and extravagance. All have been con- 
ducted on much the same principles of insurance. 
Those which were doing business on a false basis nec- 
essarily failed or reorganized. 

All these companies had in common the principle 
of basing the premium rates on the three elements of 
cost — the annual mortality, the sums required for re- 
serve, and an additional charge for expenses,called 
the expense loading. These and other technical 
terms in common use in life insurance will be more 
fully defined and explained in a subsequent chapter. 



36 HOW TO BUY LIFE INSURANCE 

The earlier companies were all mutual and the later 
stock companies called themselves mutual to the ex- 
tent of agreeing to return to the policyholders some 
part of the premium over charges. The mutual com- 
panies were on the theory that the mortality charge, 
the reserve charge and the expense loading would each 
be made higher than the fact and that the excess over 
actual results would be returned to the policyholders. 
It is this return of excess charges which is commonly 
called "dividends." It is really not dividends in the 
ordinary meaning of that word, but a refund. The 
companies guarantee that the policies should in no 
case cost more than the stated premiums. They ad- 
mitted that these premiums were higher than the 
cost and they either explicitly or impliedly agreed to 
refund the excess. 

Besides this form of life insurance which included 
over eighty per cent, of the assets and also the bulk of 
the ordinary life insurance business, there developed 
side by side other forms of life insurance whose policies 
outnumbered several times the straight or so called 
old line policies. 

Of all forms of life insurance policies, those issued 
by the industrial insurance companies are now the 
most numerous. Three of these companies alone, the 
Prudential of Newark, the Metropolitan of New York, 
and the John Hancock of Boston, have outstanding 



HISTORY OF LIFE INSURANCE 37 

over 15,000,000 policies averaging less than $150 
apiece. The average premium payment on these is 
$5 a year, collected in small installments of five, ten 
and twenty-five cents. This huge business has grown 
in the last 30 years from an humble beginning in 1875 
at Newark. 

Industrial insurance differs from ordinary life in- 
surance in that its real effect is not to provide 
for those dependent upon the policyholder after his 
death but to furnish the funeral expenses. These 
policies are taken in the names not only of the hus- 
band and father, but of the w T ife and children. In 
effect, the payment goes to the undertaker and pro- 
duces no good result except to have a more expensive 
and ostentatious funeral than the ordinary means of 
the family would afford. This insurance costs twice 
as much as ordinary life insurance. Its value for pro' 
tection is almost nothing, and its drain on the income 
of the families who pay it aggregates, according 
to the United States Department of Labor, a cost 
greater than the average annual expenditure for to- 
bacco and about the same as the average annual ex- 
penditure for intoxicating liquors. The amounts 
which these companies pay out to their policyholders 
are only about a third of the sums which their policy- 
holders pay to them. Their policies are not life insur- 
ance but funeral insurance, and they have no legitimate 



38 HOW TO BUY LIFE INSURANCE 

place in a discussion of life insurance protection. 

On the other hand, assessment and fraternal life 
insurance are both in fact, what their name implies. 
They do furnish life insurance protection, and when 
properly managed, they furnish protection at a much 
less cost than deferred dividend, or investment life 
policies. Their great defect is lack of stability. They 
have seldom outlived their original members. Assess- 
ment life insurance is older than level premium insur- 
ance. It is more like the way the Amicable Society 
started out to do business than the manner in which 
the greatest life insurance companies do business to- 
day. It can be traced back to Rome and Greece, or 
even to earlier Tribal Communities where the mem- 
bers voluntarily assessed themselves in cases of sickness 
or death. It and fraternal insurance, to which it is 
much akin, are the oldest known forms of insurance. 

Assessment insurance is of two kinds. Either all 
the members pay an annual assessment fixed at an 
amount, the total of which is divided among the bene- 
ficiaries, or a fixed sum is paid in case of death and 
the total amounts required to meet these payments are 
raised by assessment upon all the members. In some 
assessment companies there has been a tendency to 
combine assessment insurance with a greater or less 
reserve in order to have a fund as a margin of safety. 
In many of them certain features have been adopted 



HISTORY OF LIFE INSURANCE 39 

from the level premium insurance companies in order 
to provide against the contingency of some members 
failing to meet their assessments. 

Theoretically, assessment insurance with the assess- 
ments properly graded according to the age and risk 
would be the most equitable of all forms of insurance, 
but its practical working has been such that, except 
where it was combined with some stronger tie, such as 
the fraternal organization, or a trade union, or a secret 
society, assessment insurance has tended to dwindle 
away. The great difficulty with assessment life in- 
surance is that losses by death have to be replaced by 
new members, or the assessment rates become pro- 
hibitory, and even with constant replacement, the 
aging of the original members means an annual in- 
crease in the total death payments, and correspond- 
ingly an annual increase in assessments. The fact 
that insurance costs so much less in early life than in 
old age is not sufficiently well understood by the 
general public to prevent the natural discontent 
which results from a policyholder seeing the cost of 
his insurance protection double and treble as the 
years go on. 

Fraternal insurance is an outgrowth from assess- 
ment insurance, which it has to a great extent sup- 
planted, although retaining many of its fea ures. 
Almost all trade unions, many secret organiza- 



40 HOW TO BUY LIFE INSURANCE 

tions trade and business associations agree to fur- 
nish,in addition to their trade, business and social bene- 
fits, a certain protection to their members in 
time of sickness or death. This protection is only 
approximately based on mortality tables. The cost 
of it is included in the ordinary payments or dues 
and its expenses are met out of the general fund of the 
fraternal order, secret society or association. In some 
cases the amount paid is not larger than enough for 
a funeral benefit. In other cases definite insurance 
policies are issued in amounts as large as the smaller 
policies of an old line company. 

In the organizations where policies of a thousand 
dollars or more are issued it has been found necessary 
to adopt a scale of premiums based to an extent 
on the standard mortality tables. This, however, 
is usual only where the beneficiaries receive different 
amounts and the policyholders pay proportionate 
dues. Where an organization pays the same sum in 
all cases of death or sickness, the amount paid is 
smaller and the dues or premium payments are gener- 
ally the same irrespective of the age of the member. 

The general principle of fraternal insurance is that of 
an equality in payment and an equality of benefit. 
No life insurance company could be conducted on 
such a principle as that young men should pay 
the same amount for insurance protection as old men. 



HISTORY OF LIFE INSURANCE 41 

The insurance of old men at the same price as young 
men is in reality charity and not business. Any 
life insurance company which would undertake 
such a thing would fail. Some assessment com- 
panies which lacked the fraternal ties and under- 
took this have failed, to the discredit of assessment 
insurance. Other assessment companies have 
found their error and sought to correct it by 
an adjustment of premium rates, charging the 
older members what their insurance costs. This 
causes dissatisfaction among the older members who 
had been led to expect that the contract made with 
them would continue on the same terms until their 
death. The recent troubles in the Royal Arcanum 
have resulted from necessary attempts to readjust the 
amounts charged for insurance. The readjustment 
might perhaps have been made more skilfully and 
with less hardship to the older members, but it was 
none the less imperative to rearrange the rates and to 
increase the cost of insurance if the Royal Arcanum 
was to be kept out of insolvency. 



CHAPTER IV 

Life Insurance Frills. What is Sold Under 
the Head of Life Insurance. 

OF the policies issued by the great present day life, 
insurance companies, hardly a quarter are pure- 
ly life insurance policies. There are hundreds 
of forms of policy but very few contain the simple pro- 
mise of a payment of a fixed amount at the death of a 
policyholder, that and nothing more. The additions 
to and the variations from this pure simple contract 
are numbered in the hundreds. Some companies seek 
to bring out novelties every Spring and Fall like a 
milliner's or dressmaker's announcements. They 
have skilled ingenious officials devising new propo- 
sitions under attractive names which the plausible 
agents present to the public. 

These many policy forms concur in promising a pay- 
ment of some kind at the death, but the amount of the 
payment and the manner of paying it are of great vari- 
ety and the alternatives to its payment are still more 
varied. To state all the opportunities, possibilities 
and alternatives of the popular and most sold forms 
of policy, takes several pages of type and figures. 



LIFE INSURANCE FRILLS 43 

Part of the promises are printed in large type. Most 
of the alternatives and almost all of the restrictions 
are in small type. The combination is so lacking in 
intelligibility and clearness that it is doubtful if one 
policyholder in ten can, by reading his policy, get a 
clear comprehension of its provisions and promises. 
It is doubtful if one policyholder in a hundred has an 
accurate and correct knowledge of exactly what con- 
tract the insurance company has made with him. 

The simplest form of policy is short term insurance. 
From the business point of view this most nearly cor- 
responds to a fire insurance policy and similarly this 
form of policy is taken usually only in business mat- 
ters. Where a partnership is created for a few years 
or a sum of money borrowed for a short period, or 
some other business arrangement made where the life 
of one of the contracting parties is an important fea- 
ture to its fulfillment, it is frequent that a life insurance 
policy of a term equal to the business transaction is 
taken as a protection. Such a policy has no frills. It 
is the cheapest form of life insurance protection and 
it is almost never issued except in connection with 
some business transaction. 

Next to that in simplicity are long term or renew- 
able term policies, whose premium rates are compara- 
tively low, which participate in no profits or savings or 



44 HOW TO BUY LIFE INSURANCE 

surplus earnings and which have little if any reserve 
or surrender value. 

Next is the common form of straight level premium 
policy non-participating, that is with no right to 
any refund of the excess charges. It is called non- 
participating because the policyholder has no right 
to share or participate in any so called "dividends" 
or "profits." That is, the non-participating policy- 
holder pays a lower premium rate and in consideration 
of the lower premium he waives a right to the refund 
of any excess premium charge or to any part of any 
surplus resulting therefrom. These straight life poli- 
cies used to be sold to a much greater extent than 
now. The commission the agent receives on them is 
less than on the more costly forms of policy and few 
agents even offer them for sale or issue them unless 
they are asked for. The advantages and certainty 
of the lower premium of a non-participating policy are 
not generally known to the public. Some of the big- 
gest companies refuse to issue them. 

More common than term and non-participating poli- 
cies as a form in which life insurance protection is sold 
are the participating or dividend policies. For the same 
amount of insurance protection the premium is about 
a quarter higher for a participating policy than a non- 
participating policy. The premium tables printed in 
the statistical appendix give these premium rates in 



LIFE INSURANCE FRILLS 45 

detail and enable a prospective policyholder, with the 
use of the progressive compound interest table to fig- 
ure out their comparative cost. 

Initially a dividend policy of whatever nature costs 
more than either non-participating or term insurance. 
Any man who dies within the dividend period would 
have saved money had he taken a non-participating 
or term policy. Whether a participating policy is 
cheaper in the end depends almost entirely on the 
efficiency and integrity of the management of the 
company. It depends upon also how long a man 
lives after taking out the policy. 

To the extent that the premium rate of a partici- 
pating policy is higher than the rate for a non-par- 
ticipating policy, the dividend policyholder has made a 
speculation on which he may win or lose. The ex- 
perience of recent years in most dividend companies 
is that the policyholder would have been better off 
if he had taken the difference in premiums and de- 
posited it in a savings bank. This varies greatly, 
however, according to the company. No general 
statement about all companies can be made in this re- 
gard, as the refunds in the name of "dividends" have 
been much larger in annual dividend companies than 
in deferred dividend companies . Here again the 
dividend tables and statistics must be consulted and 
the policyholder must use his own judgment as in 



46 HOW TO BUY LIFE INSURANCE 

any other form of investment. The risk ranges as 
much as between investing in Mexican gold mines and 
in a good real estate mortgage. 

It must be understood that the word "dividends" 
is used in describing these refunds of excess charges, 
because that is the term which all insurance companies 
apply to them and under which heading the various 
insurance publications and insurance reports contain 
these items. As was explained in the preceding chap- 
ters, there can be no dividends or profits from an insur- 
ance policy. There can be only a refund or surplus, 
resulting from a preceding excess charge. With this 
explanation the term "dividends" will be used in the 
further discussion of the subject in order to avoid the 
continued repetition of the explanation of this fallacy 
and to conform with the general insurance literature 
99 per cent, of which is prepared or published for the 
insurance companies and their agents. 

Dividend policies are of two general kinds, short 
term or annual, and deferred. In annual dividend 
policies the excess cost is computed and either credited 
or returned annually. In deferred dividend policies 
the computation and the credit or repayment are de- 
ferred for 10, 15 or generally 20 years. Any policy- 
holder who dies during the dividend period receives 
no dividend. If he holds a 20 year deferred dividend 
policy and dies on the day before the 20 year period 



LIFE INSURANCE FRILLS 47 

expires, all the excess premiums which he has paid 
and all the compound interest on them is forfeited. 
Neither he nor his heirs receive any benefit whatso- 
ever for a long continued additional and needless 
expenditure. 

In these dividend contracts there is no legal 
agreement as to how the dividends are computed or as 
to what their amounts will be. In regard to this the 
agents are profuse in the expectations held out and 
the promises made by implication, but the policy does 
not contain these promises and the courts have repeat- 
edly decided when the deluded policyholder sued, 
that all the policyholder is legally entitled to receive is 
the face of his policy and whatever additional amount 
the officials choose to apportion to him. 

It is these long time deferred dividend contracts 
and other so called "investment policies," which are 
pushed by the agent and make up the majority of 
policies now in force. 

From the policyholder's standpoint a deferred divi- 
dend policy has no advantages. It gives no more life 
insurance protection than the cheaper forms of policy. 
It has no greater reserve than non-participating insur- 
ance. In return for paying a quarter more, all the 
policyholder receives is the possibility of his getting 
back after 20 years part of the excess payment. The 
same objections apply to a less extent where the pay- 



48 HOW TO BUY LIFE INSURANCE 

ments and apportionments are made annually. In 
these cases the policyholder is reasonably certain to 
get back something. 

Where the company is well managed, economically 
administered and its investments of its reserve are pro- 
fitable, as in the best managed mutual companies, 
the annual dividend policy costs less to long lived 
men than either non-participating or term insurance. 
To the short lived man it costs more. If the annual 
dividend policy were in reality a contract annually to 
refund the excess premium over the mortality and the 
reserve requirements and a fixed percentage for ex- 
penses, it would begin with the first year and contin- 
ue every other year giving the insured his insurance 
at actual cost, plus the expense of management. But 
none of these dividend policies, whether annual or de- 
ferred, provides for a more contractual computa- 
tion. They all permit the officials to make what 
apportionment they think best, and leave the policy- 
holder at their discretion in respect to what he re- 
ceives over the definite amount stated in his policy. 

A deferred dividend policy is the worst of all the so- 
called investment policies. The evils inevitable to it 
are inherent in all forms of policy which seek to com- 
bine investment savings with life insurance protec- 



LIFE INSURANCE FRILLS 49 

tion. The higher the premium rate and the greater 
the number of alternative selections, the more cer- 
tain it is that the policyholder, at the end of the long 
deferred dividend period, gets neither what he ex- 
pected nor what he paid for. 

The combination of life insurance with endowment 
is one of the most attractive and popular, and at the 
same time one of the most illogical of the invest- 
ment policies. A pure endowment policy is exactly 
the opposite to a life insurance policy. An endow- 
ment is payable only should the insured be living at 
the end of the endowment period. Should he die be- 
fore his endowment matures all his excess payments 
are gone, and his heirs have nothing to show for them. 

While life insurance is paid only on death, endow- 
ment is paid only to live men. It should be evident 
to every one that the same man cannot under the 
same policy receive both endowment and death pay- 
ments. To get one he must die. To get the other 
he must live and he cannot by any contingency be 
both dead and alive at the same time. 

This would seem a perfectly obvious truism but 
still policyholders go on making the high payments 
which this combination policy demands, on the agent's 
assurance that in any event they are sure to get the 
face of their policy. If they live they get their endow- 
ment. If they die they get their life insurance. They 



50 HOW TO BUY LIFE INSURANCE 

are sure to win. If instead the policyholder would 
think for a moment, consider he was paying for both 
and cannot get more than one, the fallacy of this popu- 
lar argument from the delusions of which both agents 
and officials profit, would bring about its destruction. 

No man who is certain to live twenty years needs 
any life insurance. He had much better put the pre- 
mium money in a savings bank or a home, or loan it out 
on bond or mortgage or even buy government 2 per 
cent, bonds with it, the least remunerative form of in- 
vestment known except an investment policy in a 
Wall Street life insurance company. 

A pure endowment policy has its advantages in in- 
culcating habits of regular savings. There are a 
number of trust companies, banks and other finan- 
cial institutions, which issue endowment policies non- 
forfeitable at death and maturing at 10, 15, 20 and 25 
year periods. The cost of these endowments is no 
higher than the cost of a life insurance endowment, 
and they have the great advantage that should the 
policyholder die during the endowment period, his 
savings compounded are turned over to his estate, 
instead of being absolutely forfeited as the combina- 
tion life and endowment policy provides. If a man 
wants an endowment he should buy the pure and 
non-forfeitable article, instead of a forfeitable com- 
bination with a term life insurance policy. 



LIFE INSURANCE FRILLS 51 

These combination policies are of many kinds, ton- 
tine, semi-tontine, accumulation annuity, five per 
cent, bonds and other forms. They are all frills and 
delusions, all of them containing the fundamental fal- 
lacy that a man is paying for two things and cannot 
get more than one, and many of them containing an 
additional fallacy in their promise to return his pre- 
miums without any mention of the compound inter- 
est which these premiums have accumulated during 
the years that they have been kept in the company's 
possession. 

Further on an arithmetical analysis will be made of 
the workings of these forms of policies. All that is 
sought to be set forth here is that none of these frills 
is necessary or even incidental to life insurance pro- 
tection and that the excessive cost of them is a need- 
less payment, a waste of the policyholders' hard earn- 
ed money and a constant incentive to dishonesty, 
waste and mismanagement by the officials of the com- 
panies which urge the expensive attachments on the 
policyholders. 

The pure tontine form of investment policy is a 
scheme to give the policyholders who continue pay- 
ing their premiums to the expiration of their policies, 
the benefit of all the payments forfeited by policy- 
holders who are unable to continue. It is a specula- 
tive delusion that the policyholders who stick will re- 



52 HOW TO BUY LIFE INSURANCE 

ceive what other policyholders paid for something 
they did not get. That is, some men are to get what 
some other man paid for and did not get. 

Such a promise is deceptive and the code of morals 
which promulgates it bears fruit in the dishonesty of 
the officials who carry it into execution. Every man 
should get what life insurance protection he pays for. 
Any fortune has for its basis taking from some men 
what they have paid for and giving others what they 
have not paid for. A man who would enter into it had 
better sit down at a gambling table and have his 
" speculation" over with speedily. 

The semi-tontine investment policies are a compro- 
mise by which the men who drop out get a refund of 
part of the excess charge, and the remainder of the ex- 
cess charge which should have been refunded is car- 
ried into an accumulation fund. It is only half as 
speculative as the whole tontine. It is somewhat as 
if at the end of a poker game the chips were redeemed 
at half price and settlements made on a fifty per cent, 
basis so that the winnings and losses alike would be 
scaled down. 

The deferred dividend accumulation policies are 
the most common speculative form of the tontine. In 
these the survivors are supposed to get the dividends 
of those who died earlier. In return for paying pre- 
miums a greater number of years, they are promised 



LIFE INSURANCE FRILLS 53 

the receipt of the excess payments of the policyholders 
in their class who died earlier. All are charged an ex- 
cess premium every year with the promise that the 
survivors will receive all the excesses. 

These provisions are not life insurance. None of 
them should have anything to do with life insurance. 
If a man wants to speculate he has that constitutional 
right. The main object of life insurance is to guard 
his wife and children against the disastrous results 
of untimely death without assuming other specu- 
lative risks. It is to assure them a modest compe- 
tency approximate to his saving capacity capitalized. 
To combine with such safeguards against the future, 
any speculation or gambling is inherently wrong. 

The tendency has been to make these gambling 
policies still more popular and add to them another 
gamble as to the length of life of the widow and or- 
phans. Instead of these speculative policies provid- 
ing for a fixed and permanent payment at death, 
there is a provision for a number of single payments 
to the widow. There is also a provision for dividing 
these single payments among the widow and orphans. 
These provisions are called a guaranteed annuity 
and cloaked under that guise. 

An annuity is the opposite to level premium non- 
participating life insurance. The annuity contract is 
that in return for the payment of a lump sum, the an- 



54 HOW TO BUY LIFE INSURANCE 

nuitant shall receive a fixed sum annually until his 
death. The payment is of course based on the age and 
the average prospective life of the annuitants. 

To combine an annuity with a life insurance policy 
is to combine the life risk of the policyholder with the 
then life risk of his wife and children. The longer the 
policyholder lives, the less is the likelihood of longer 
life to his wife and children. The day of their death 
approaches every year just as the day of his death does. 
An annuity which is based on their age at the time he 
insures, should be much larger than when computed on 
the basis of their age on the day of his death. Annui- 
ties are sold without medical examination and are 
based on the American Experience Mortality Tables 
and the usual reserve rate of interest. If the widow 
and orphans are to have an annuity it is better and 
cheaper to wait until the policyholder's death and 
then to take the insurance money and buy one. 

Annuities are at best a vanishing form of invest- 
ment, since the principal departs with the interest 
payments and the usual annuity return is not so much 
higher than savings bank interest or conservative 
bonds or real estate mortgages as to make it profitable 
to purchase. In England where the business of sell- 
ing annuities has been more developed than in the 
United States, the rate of annuity return more nearly 
approximates the current rate of interest on conser- 



LIFE INSURANCE FRILLS 55 

vative investments. It has the selfish virtue of insur- 
ing to its possessor a certain income during his life and 
guaranteeing there will be nothing left to his heirs. 
Where a man is at war with all his relatives an annu- 
ity is a sure way for him to get the full material enjoy- 
ment of his own estate and to finish his life in idle- 
ness, in the certainty that there will be no heirs 
eagerly awaiting the day of his death. 

Should perchance any man desire any of these life 
insurance frills, he should regard them as what they 
are — not life insurance protection, but something 
apart from life insurance. He should make a sepa- 
rate contract for them and figure out exactly what 
they cost him and what he will get. He cannot get 
life insurance protection without paying for it, and 
he had better take his life insurance policy pure and 
simple and without any contract, except that in re- 
turn for his paying the premiums his beneficiaries 
shall receive a fixed sum at his death. 



CHAPTER V 

Who Should Insure and Why 

SINCE life insurance is only protection, no one 
should buy it who has not some one beside him- 
self to protect. If the only desire is to secure pro- 
tection against accident, an accident insurance policy is 
the best and cheapest for that. If it is to secure protec- 
tion against the infirmities and possible poverty of old 
age, a pure endowment policy without any life insur- 
ance features or systematic deposits in a savings bank 
or conservative investments of any kind, will accom- 
plish that result. A life insurance policy detracts 
and hinders rather than helps provision for old age 
since it pays only after death, except the surrender 
value which amounts in old age to only a third or a 
half of what would have been the total of the pre- 
mium payments deposited at compound interest. 

On the other hand, life insurance is not only the 
best but the cheapest and only adequate way to protect 
others. Nothing can or does take its place because 
there is no other form of contract which gives the 
same payment at death whether the insured dies 
tomorrow or at the end of fifty years. The great and 



WHO SHOULD INSURE AND WHY 57 

essential and unique benefit of life insurance has been 
beclouded by the delusions of investment and com- 
bination policies and by the neglect to present it as 
what it is and sell it on a frank business basis as 
any other necessary commodity. To make life in- 
surance pure and simple, instead of diminishing its vol- 
ume as the advocates of deceptive policies assert, 
would have the opposite effect in increasing the 
amount of life insurance and in making its utilities 
better known and its benefits of more common value. 
The instinct of protecting a man's wife and family 
is so strong that assessment, benevolent and fraternal 
organizations outnumber in their membership the 
holders of the complicated policies. The natural de- 
sire to buy the most life insurance protection at the 
least cost has led the wage earning class in general to 
go into those associations which do not seek to com- 
bine investment, speculative and gambling features 
with life insurance protection. The management of 
many of these associations has been more honest than 
intelligent. It has lacked the technical actuarial 
knowledge and experience which is necessary to pre- 
vent selling life insurance at too low a cost with the 
ultimate resulting failure, but with all that, the recog- 
nition of the need of life insurance protection has 
been so general that some ill-adjusted and almost 
chimerical plans have filled the popular demand fully 



58 HOW TO BUY LIFE INSURANCE 

more faithfully than some of the great companies 
with their $150,000 presidents, their $25,000 actua- 
ries and their gold bond policies. 

A severe arraignment is due these richer and more 
intelligent men who have spent the money of their 
policyholders in forcing upon the public policies which 
were not for the best interest of the public rather than 
filling their 'proper place as leaders and instructors 
and educators of the public, to an intelligent knowl- 
edge of what life insurance is and what it should cost. 

The public must share in this blame because they, 
especially those who are better off and better educated, 
have contributed to it by buying the forms of policies 
which give the least life insurance protection for the 
money. That part of the public which suffers finan- 
cially most by the delusive fallacies of investment in 
deferred dividend policies is not the mechanic or the 
member of a trade union or fraternal society, who 
insures to a modest extent in his own organization, 
but the business men and professional men who have 
taken out policies of larger size and who have turned 
a great part of their surplus savings over to extrava- 
gant or dishonest managers. 

Every man who is married should insure, except 
possibly in those unusual cases where his wife has 
such a large individual estate that she contributes to 
his support instead of he to hers. Even in this rare 



WHO SHOULD INSURE AND WHY 59 

case if he has children he should insure his life for 
their benefit. No matter whether his health is good 
or bad, or his prospect of life, according to his own 
judgment, long or short; he should buy life insurance 
protection in proportion tg his means and scale of 
living. 

This applies as well to the rich man as to the poor 
man, to the professional man as to the farmer, to the 
shopkeeper as to the mechanic. Every man whose 
earning power is a protection to some one else should 
take out a life insurance policy so that that protec- 
tion may not wholly cease upon his death. Not only 
should protection be provided for the members of his 
family, his wife and children, his mother and sisters, 
if they too are dependent upon him, but the same pro- 
tection should be provided against losses to his busi- 
ness associates or his creditors by his death. 

The use of life insurance protection in business af- 
fairs should be more common than it is, especially 
among men of many activities. The value of the 
man's business depends greatly upon his ability to look 
after it. What his personal investments are worth 
under his supervision and management is as a rule 
much more than what they would realize in an execu- 
tor's or administrator's hands after his death. 

No man, as has been stated more fully in a preced- 
ing chapter, can insure his whole earning capacity. 



00 HOW TO BUY LIFE INSURANCE 

If he bought life insurance with all his surplus earn- 
ings, the total paid to his wife and children would not 
in its income producing power anything like equal his 
whole earnings, for out of his earnings he would have 
to take his living expenses before his payments for life 
insurance premiums. 

Then there are few men, especially few business 
men, who can afford to put all their surplus earnings 
in life insurance. The demands of a growing business 
require increased capital. Increased profits usually 
induce a more expensive scale of living. Even with 
men on a fixed salary there are few who can regularly 
make premium payments equal to their maxi- 
mum savings. The premiums which a man with only 
a wife might meet would become heavy as the children 
came and the premiums which might be paid while 
the children were young would prove too great as the 
children grew older and their education and other ex- 
penses increased. Undertakings to pay too large 
premiums account for a great proportion of the lapsed 
and surrendered policies. 

No pure life insurance policy on which premiums 
have been paid can ever be sold for what it is w r orth to 
the policyholder. Its only value to the company is 
in relieving it from contingent liability. Even then 
few companies pay the full value of the contingent 
liability. In any case its value as protection to the 



WHO SHOULD INSURE AND WHY 61 

man's family is much greater than the money which 
the company will pay him for its surrender. Every 
man who contemplates surrendering an insurance 
policy, especially a level premium, non-participating 
policy, should realize the important fact that he can- 
not buy back the same amount of life insurance pro- 
tection at anything like the price he sold it for. The 
longer he has paid premiums on the policy the greater 
is the difference between the rate at winch he origin- 
ally insured and the rate which he w r ould have to 
pay for insurance at his advanced age. 

An honest man is almost as desirous of fulfilling his 
obligations as of protecting his w r ife and children. 
Every man should try his best to do both. Life in- 
surance is the best and cheapest w r ay to do both. How 
many men die with their business affairs so involved 
that there is nothing left for their families except 
their life insurance and that even their homes have to 
be sold to meet obligations to their creditors! 

The value of a partnership depends upon the work 
and ability of all its members. The result of a con- 
tract depends upon the contractor living to carry out 
his plans. The value of a crop, of goods in manu- 
facture of almost all forms of industrial production, 
depends more or less on the same hand holding the 
helm until the voyage has come to its end. 

Against all these contingencies a man should insure 



62 HOW TO BUY LIFE INSURANCE 

his life. His good business name is dear to his wife 
and children. The insurance which he gives them 
should be free from any conscientious pressure to de- 
vote part of it to the payment of his debts. He does 
not want to leave his wife so that his business asso- 
ciates and friends and neighbors can feel, and some- 
what justly, that her inheritance from him has been to 
any extent at their expense. 

Against old age a man may properly insure by lay- 
ing aside money in a savings bank. He is certain that 
if he continues his deposits old age will find him 
guarded against poverty and that the same estate 
which supported him in old age will continue to sup- 
port his family afterwards. If everybody were to die 
at the same time the average man dies, life insurance 
would be a needless expense. It gives the financial 
assurity which nothing else can, and therefore where- 
ever there is a loss contingent upon the failure to live 
long, there life insurance should be bought to min- 
imize the risk. 

A popular misapprehension exists that insurance is 
gambling, or at least a speculation. Quite the con- 
trary. What insurance does is not to create a new 
speculation or risk, but to diminish a risk already and 
inevitably existing. A man who owns his home is 
always in danger of his house burning down and that 
is a great and serious risk which no man should as- 



WHO SHOULD INSURE AND WHY 63 

sume himself. Only large corporations whose pro- 
perty is located at many places and which are able to 
maintain fire protection of their own, can profitably 
assume the risk of loss by fire. The man who in- 
sures his house does not diminish the danger of its 
burning by taking out a fire insurance policy, but he 
does minimize his risk. If he insures for the full value 
of the property he reduces the financial risk from the 
total value of his house to the small percentage of 
that value which he pays for protection. He risks 
not the face of his fire insurance policy but the amount 
of his premium. It is an almost trifling risk instead of 
a great one. So with life insurance, only the real risk 
there is less proportionately than in insurance against 
fire, for every man dies some day or other while most 
houses never burn down. 

The only risk which a life insurance policyholder 
must take is of the total of the mortality cost and the 
expenses of management which together represent the 
annual cost of his protection. The reserve cost he 
does not risk except in the earlier years of his policy. 
This statement does not apply to a combination en- 
dowment or deferred dividend or similar form of in- 
vestment policy which matures only after a period of 
years. In the case of these policies the holder takes 
the risk of all the investment payments and the com- 
pound interest on them. It is his investment re- 



64 HOW TO BUY LIFE INSURANCE 

turns and not the legitimate cost of his insurance 
protection which are the gamble and the specula- 
tion. 

The man who insures his life diminishes the risk of 
financial loss from death by the extent of the face of 
his policy. If his earning power is $1,000 a year and 
he insures his life for $5,000, the financial loss by his 
death is diminished by the $5,000. Instead of having 
him to work and earn for them his family have $5,000 
to work and earn for them. At 4 per cent interest 
this would return $200 a year. The annual risk 
of his death instead of being $1,000 is only $800. In 
effect this risk is reduced proportionately more be- 
cause with his death his personal expenses cease. If 
the cost of his clothing and food and personal expenses 
were $400 a year, the financial loss by his death would 
be $600 a year. His insurance would lessen this loss 
a third. 

Neither is a risk taken by the insurance company. 
The insurance company, regarded from the proper 
economic standpoint, is merely a collecting and dis- 
tributing agent. The death rate is fairly constant. 
The contract of insurance in practice evens the loss on 
all the insured in proportion to their premiums and 
the amounts of their policies. The man who dies has 
already paid his share of the annual mortality. The 
other policyholders had already paid their shares. 



WHO SHOULD INSURE AND WHY 65 

The company had the money to pay so many death 
losses already in hand. It makes no difference to it 
or to the surviving policyholders what individuals 
die or what ones live. The only happening that could 
interfere w T ith this would be such a plague or epidemic 
or sweep of disease as would cause present day mor- 
tality to exceed the mortality of past experience. 
There has been no such result in a well conducted life 
insurance company since the Amicable Society began 
selling life insurance in 1706. The possibility of any 
such disaster is so remote that it would be an error to 
consider it. 

Since insurance is only a protection it is a waste of 
money for any man to buy it who has no one to pro- 
tect. It is also an extravagance to buy it in antici- 
pation of having some one to protect. For a young 
unmarried man with no one dependent upon him to 
take out a life insurance policy is a waste of the pre- 
mium money. Almost the only case in w T hich such 
a course would be profitable is where a man's health 
should later break down so that he would become un- 
able to pass a medical examination and then after his 
health had broken down he should persist in marry- 
ing and assuming family responsibilities. Where a 
young man has a mother or father or other relatives 
dependent upon him for support he should of course 
insure; should they die before him he could then desig- 



66 HOW TO BUY LIFE INSURANCE 

nate a new beneficiary. But where a young man has 
no one dependent upon him, where there is no reason 
for his providing for the protection of anybody except 
himself, he had far better invest his money than spend 
it in life insurance premiums. 

Until the relation of protector arises, life insurance 
is as valueless as for the man who already has all the 
clothes he needs, to buy additional clothing because 
he may need it the next year or the year after that. 
The illustration is favorable, because the clothing 
would always have some value, while the life pro- 
tection for which he has paid ceases at the end of the 
year which was paid for unless it is paid for over again 
every successive year. 

As it is wasteful to buy life insurance protection be- 
fore it is needed, it is still more foolish not to buy it at 
once when it is needed. And the necessity arises as 
soon as the relation of protector arises. The life in- 
surance policy should have the same date with the 
marriage certificate. There should be other poli- 
cies simultaneous with the birthday of every child. 
There should be other policies for every dependent 
relative. There should be other policies synchronous 
with every business venture. Instead of there being 
only 20,000,000 life insurance policies in the United 
States there should be 100,000,000. 

With the purging of life insurance policies from 



WHO SHOULD INSURE AND WHY 67 

their complications, with the purifying of the manage- 
ment, with full publicity, with everything simplified 
and open to the sunlight, life insurance should step 
into its proper relation to home life and indus- 
trial conditions as the great minimizer of risk, the anti- 
dote to speculation, and the guarantee against the 
financial vicissitudes of American life, its ups and 
downs, its fatal fluctuations and the financial wreck 
which so often death leaves behind. Against these 
life insurance is the best protection. 



CHAPTER VI 
What Kind of Policy to Buy 

EVERY company has its own forms and kinds of 
policies. All told there are thousands, the large 
companies having several hundred apiece, but 
all these forms of policies come under five general 
heads. 1, Industrial; 2, Assessment or Fraternal; 3, 
Natural Premium or Term Insurance; 4, Level Pre- 
mium; 5, Combination Investment Policies. 

Under the heading of natural premium policies 
would be included term insurance, and, under level 
premium would be grouped both participating and 
non-participating policies, provided that the partici- 
pating policies annually returned the savings in excess 
charges to the policyholder. Any form of deferred 
dividend is to an extent speculation and in part invest- 
ment, and is not, strictly speaking, a level premium 
policy, although the premiums may be level in their 
contract amount. In a strict classification, annual 
dividend policies might also be in the fifth instead of 
the fourth class, but an annual dividend policy has no 
investment features, and where the dividends equal 
the mortality and reserve savings, it is not speculative. 



WHAT KIND OF POLICY LO BUY 69 

Industrial insurance is only in small amounts. Its 
essential features are that the premiums are paid 
weekly and collected by agents instead of annually or 
semi-annually by payments to the principal office; its 
premiums are of fixed amount five or ten cents a week, 
and the policy payments vary, instead of the policy 
payments being in even sums and the premiums 
varying as in ordinary life insurance. Industrial in- 
surance pays back on the average 28 cents for every 
dollar the policyholder pays in. Less than one policy 
in ten pays anything. It is the most expensive form 
of insurance and no one should buy it. Almost all 
of the ordinary life insurance companies will receive 
premiums quarterly, and they also sell policies on 
which the premiums are no larger than the 
cost of an industrial insurance policy. The same 
amount of insurance in any other than an industrial 
company costs a half to a third as much; or to put it 
differently, the same sums annually paid in premiums 
will buy two or three times as much life insurance pro- 
tection by taking a policy in other than the industrial 
companies. Several of the largest industrial com- 
panies actually issue life insurance policies at less than 
half the rate they charge for their industrial policies. 
To cite the argument of the President of one of the 
largest Industrial Companies before the New York 
Legislative Investigating Committee : "the man who 



70 HOW TO BUY LIFE INSURANCE 

buys coal by the pail instead of the ton has to pay 2 
or 3 times as much for it." That statement should be 
a conclusive argument against taking out an industrial 
policy. The man who never has enough money at 
one time to pay a quarterly premium on a five hundred 
or a thousand dollar term or level premium policy, can- 
not buy an industrial policy to an amount more than 
enough to give him a somewhat elaborate instead of a 
modest funeral. Indeed this is where four-fifths of the 
payments of industrial insurance go — to add to the 
funeral display. The aggregate payments made 
on a term or straight life policy would result in a sub- 
stantial payment several times as large and of great 
value to the widow and orphans. 

There is no table of industrial insurance premiums 
printed in the statistical appendix. Nor does it state 
the volume of business, premiums and assets of the 
industrial companies. No aid will be given by this book 
to such "insurance." Every one of the other four 
classes of policies has legitimate arguments in its favor. 
Every one has its advantages and disadvantages. 
While the author does not believe in combining in one 
policy investment and insurance protection, or in 
witholding dividends from the policyholders for 10, 
15 or 20 years, and sees no reason why the average 
man should not buy life insurance at the lowest price 
he can, still it would be extreme prejudice to denounce 



WHAT KIND OF POLICY TO BUY 71 

the judgment of everybody who may take out some 
other form of policy than the conclusions in this book 
would indicate. But as to industrial insurance there 
is no reason for its existence in its present form ex- 
cept the enrichment of the officials and stockholders 
at the expense of the policyholders. 

Assessment and fraternal insurance comes under the 
same head in the general principles under which it is 
operated. Some assessment societies and fraternal 
orders issue level premium and investment policies. 
As to these, they should be considered the same as 
any other policies of those kinds. The mere fact 
that they are issued by an assessment or fraternal or- 
ganization does not change their nature. Any policy 
which conforms to the definition of a level premium 
or an investment policy is one, no matter what the 
concern which issues it may call it. 

The essence of assessment or fraternal insurance is 
the payment of the death loss by contributions from 
all the members not based strictly on the American 
Experience Mortality Table and the actuarial calcu- 
lations of the socalled Old Line companies, but on a 
general system of mutual aid and contribution and 
fraternal fellowship. Without this binding tie assess- 
ment insurance can not continue long unless it is made 
to conform with the actuarial facts. Many associa- 
tions which started out by meeting death losses 



72 HOW TO BUY LIFE INSURANCE 

through approximately equal assessments on all 
their members have by stress of circumstances come 
to conform to the actuarial principles of the socalled 
"Old Line" companies. Other assessment organ- 
izations which refused to adapt themselves have gone 
out of existence through their inability to continue on 
the faulty principles which they believed would work. 
The fraternal societies have lasted better than the 
assessment organizations which had no other tie than 
a common desire for life insurance protection. A 
secret society or a trade union or a mystic order or 
other body of that nature has other interests and co- 
hesive power besides its life insurance features. Mem- 
bers join through other motives than a sole desire for 
life insurance. These ties keep up the membership 
better, prevent the dropping out of so many members 
when extra assessments are necessary, and reconcile 
young men to the inequalities of payments which oper- 
ate against them by not assessing them as much less 
than the older members as the mortality experience 
would prescribe. 

For many men fraternal insurance is as good a form 
as any. It is not likely on the whole to cost excess- 
ively. The danger is more in the lack of stability and 
the possibility of insolvency than in dishonest man- 
agement or excessive premiums. The errors in the 
management of fraternal insurance come more 



WHAT KIND OF POLICY TO BUY 73 

through ignorance. The defects in the recent man- 
agement of the three biggest "Old Line" insurance 
companies did not come through ignorance, but 
through dishonesty and malpractice. 

It is difficult to generalize about the fraternal and 
assessment societies because the cost of insurance 
in them differs so greatly and the efficiency and com- 
petency of their management shows a much wider 
variation than in the Old Line companies. It may be 
explained here that "Old Line" is the general term 
for the insurance companies which are required by 
law to keep reserves and report to the insurance de- 
partments of the various states. They all sell 
various forms of level premium policies, all of which 
require substantial reserve accumulations. 

On the assessment plan the annual cost to the poli- 
cyholder cannot be guaranteed as to its maximum. 
Every Old Line policy cannot, under any circumstan- 
ces, cost the policyholder more than a stated sum 
named as premium. Where an assessment policy 
does contain a fixed and stipulated premium, it is not 
really an assessment policy, but only a fixed premium 
policy issued by an assessment company. In theory, 
all assessment losses are paid by contributions from 
the members. If there are no losses, there are no 
contributions except for managing expenses. If there 
are slight losses, the assessments are low. If the 



74 HOW TO BUY LIFE INSURANCE 

losses are numerous, the assessments are high. In- 
stead of the experience of many years being taken in 
determining the fixed premium rate, the experience of 
each year stands by itself, and the experience of each 
company stands by itself. 

How greatly these experiences differ is shown by the 
mortality returns of these companies for 1904. The 
Knights of Honor of St. Louis had a death rate of 
34.15. The death rate of the Foresters of America of 
Brooklyn was 48.35. The modern Woodmen of Rock 
Island had a death rate of only 5.65. The Royal 
Arcanum had a death rate of 10.41, which was about 
the average. The 60 best known assessment life 
associations having a total membership of 3,046,365, 
had an average death rate in 1904 of 9.54, but this 
ratio fluctuated in individual societies from 4.57 of 
the Ancient Order of Gleaners, a new and small organ- 
ization, to the enormous death rate of the Foresters 
of Brooklyn, which should not be confused with the 
Independent Order of Foresters of Toronto, a large 
and old organization which had a death rate of 7.40. 
These death rates are given as the proportion of death 
losses per thousand members. 

Of course a society which has five times the per- 
centage of death losses must collect five times as 
much money to pay them, and the assessments of the 
members in one will be only one-fifth of the assess- 



WHAT KIND OF POLICY TO BUY 75 

ments of the members in the other. The assessment 
societies with the lowest death rate can afford to furn- 
ish insurance protection at present for a less cost than 
any Old Line company. On the other hand, the old- 
est assessment societies cannot sell insurance protec- 
tion as cheaply as a term policy in the Old Line com- 
panies, or as the cost of non-participating or annual 
dividend policies in the best managed Old Line com- 
panies. If the members of fraternal orders and as- 
sessment societies better understood the elements of 
cost of life insurance protection, they could adjust 
the rates and conditions of their insurance so that 
the cost would not be so variable and their insur- 
ance plans would meet with more even results. 

The great advantage the fraternal orders have is in 
saving the agent's commissions and the cost of solici- 
tation, advertising and literature. In this no regular 
insurance company can compete with them. Even 
the companies which pay the lowest commission ex- 
pend over 10 per cent, every year of their premium 
receipts in the conduct of their business. In the three 
largest companies the expenses of management aver- 
age a quarter of the premium receipts. Even if the 
agency force were reduced only to office managers, 
medical examiners and clerks and the solicitors were 
cut off entirely, the fraternal societies would still 
have the great advantage in expense that their officers 



76 HOW TO BUY LIFE INSURANCE 

conduct the insurance business of the society in 
connection with its social and fraternal affairs and 
without the salaries, office and other expenses 
which in strictly insurance business could not be avoid- 
ed. There is also a saving in taxes and a less like- 
lihood of fraud. 

As against this are to be offset the ignorance of technic- 
al insurance by the ordinary officer of a fraternal soci- 
ety and the occasional disruption or failure of the 
organization. Indeed, almost every assessment soci- 
ety has had to reorganize its plans and remodel its 
insurance principles. If it did not it would drift into 
the condition of the Knights of Honor of St. Louis or 
the Foresters of Brooklyn, where many members 
who could get insurance elsewhere withdrew and most 
of those remaining were old men or were such bad risks 
as to be unacceptable elsewhere. This process means 
the destruction of any assessment organization where 
there is not such a strong fraternal tie as to keep in the 
good risks and young members notwithstanding the 
increasing assessments. As every assessment organi- 
zation grows older and its original members grow old 
with it, its death rate tends to rise and it is confronted 
with the necessity of readjusting rates. The Royal 
Arcanum is now undergoing that experience, its death 
rate having increased 20 per cent, in the last 10 years, 
and the necessity either for more assessments or for 



WHAT KIND OF POLICY TO BUY 77 

a readjustment of charges having become imperative. 
Summarizing insurance protection of the second 
assessment or fraternal class, it may be advised that 
men who are naturally , through their social relations or 
their occupations, a member of a fraternal order, 
should take out a moderate amount of insurance in 
connection with the other benefits they receive. It is 
not advised that any one should take out all his life 
insurance protection in any one company and espe- 
cially not in one policy, but to the extent that a man's 
average earnings and savings permit, he should take 
out a certain amount or proportion of his life insurance 
protection in the societies and orders with which he is 
associated. Assessment insurance, except where the 
fraternal feature or other business relations are com- 
bined with it, is not advised, not because the princi- 
ple of assessment insurance with the assessment pro- 
perly graded according to age is in itself unsound, but 
because there is less likelihood of dissolution or insol- 
vency in an Old Line company than in an assessment 
organization where there are no other ties to hold the 
insured together. Whatever injustices there may be 
in the collection of mortality losses from the members 
of fraternal societies, there are compensations which 
tend to prevent dissension. This great field of insur- 
ance has proved its popularity and value too well to be 
entirely cast aside because of the mismanagement of 



78 HOW TO BUY LIFE INSURANCE 

some officials and the failures of some assessment 
associations caused more by their ignorance of the 
mathematics of life insurance than through wilful 
ness or peculation. 

Natural premium insurance is what assessment in- 
surance would be if it were on a purely mathematical 
basis, and instead of making its collections to meet the 
death losses as they occur, substituted a fixed premium 
based on the American Experience Mortality Tables 
with a margin for expenses and then returned at the 
end of the year the excess over the actual mortality. 
Natural premium insurance is the best for all business 
purposes where a term insurance policy gives the same 
protection at less cost than any other form of policy. 
Insurance protection for a fixed period of years is 
always cheaper than the same amount of protection 
on a life contract. A life policy is sure to mature 
some day. It may be forty or fifty years before the 
policyholder dies, but unless his policy is surrendered 
or lapsed, the company must count on the certainty 
of having to pay it. In term insurance there is al- 
ways a possibility,in most cases the probability, of the 
policyholder outliving the period of his policy. 

Life policies have their premiums calculated on the 
basis that no one lives to be over 96 years of age; the 
exceptions being so very few in proportion to the mass 
of the population as to have no effect on the actuarial 



WHAT KIND OF POLICY TO BUY 79 

calculations. A life policy is in its premium calcula- 
tion based on this age and a term policy running to 
the age of 96 would both be equivalent in their premi- 
ums to a level premium policy. 

In an annual term policy there are only two ele- 
ments of cost — the mortality loss and the expenses of 
management; the additional charge for a reserve be- 
ing necessary only on level premium policies. Thus 
at the age of 21 the death rate per thousand according 
to the American Experience Table is slightly less than 
8. A payment of one per cent, of the face of the pol- 
icy would allow a margin of 25 per cent, for expenses 
and contingencies. That is as cheap as life insurance 
protection at that age can be safely sold. The death 
rate of men who pass the medical examination is 
much lower, the first five years especially, than the 
average death rate, but it is not safe to try to sell life 
insurance protection too cheap because a slightly 
excess death rate would impair solvency. Some 
of the assessment societies had lower death rates in 
1904 than the American Experience indicates for men 
of 21. That enables them to sell life insurance pro- 
tection cheaper than any ordinary insurance company 
so long as their death rate continues low, but it is an 
absolute certainty that the death rate will increase, 
and that the only safe basis to figure on is what the 
best experience indicates. 



80 HOW TO BUY LIFE INSURANCE 

In a mutual company the policyholders are morally 
entitled to receive back the difference between the 
death rate of the table and the actual death rate. In 
practice they receive back whatever sum the offi- 
cials in their discretion return. So far as the 
author knows, none of the common forms of policy 
issued by the mutual companies specifically agrees to 
return to the policyholder the exact saving between 
the theoretic death rate and the actual death rate. 

Still, without this return of the mortality saving, 
term insurance is the cheapest temporary protection. 
Its cost varies according to the company issuing the 
policy, but whatever company's premium rates are 
consulted the result is the same, that term insurance 
is initially the cheapest. 

There are several kinds of term insurance. The 
cheapest of all is annual term insurance subject to 
annual medical examination. No one should buy 
a policy of this form except to protect for a short time 
a business risk and with no intention of continuing the 
policy further. The chance of dying between two 
annual medical examinations and still being so healthy 
as not to disclose the bad risk to the medical exam- 
iner is too remote for a man to take this form of pro- 
tection for any other than a business purpose. This 
kind of term insurance is sold for other periods than 
a year. Its difference from the other form of term 



WHAT KIND OF POLICY TO BUY 81 

insurance is that at the end of the period the insured 
cannot continue without another medical examina- 
tion. This insurance is the cheapest form of pro- 
tection and as it as effectively protects during the life 
of the policy as any other form of life insurance, it is 
the most advisable to buy in business matters which 
have a definite time limit. To protect one's interest 
in a five year partnership, or a three year contract or 
another business uncertainty whose date of termi- 
nation is fixed, a non-renewable term policy is a valu- 
able safeguard. These policies should be much more 
frequently taken out than they are. Many men real- 
ize the necessity of this protection for their business 
associates, but the forms of policies which the agents 
offer them are so costly that they do not buy the pro- 
tection which they could get cheaply in non-renew- 
able term insurance. 

As the necessity for protecting one's family is not 
for a fixed period and is not a business transaction, 
so this form of non-renewable term insurance is not 
fitted for family protection. Best for business pur- 
poses it is the worst for family purposes. Where a 
man desires to get the greatest amount of insurance 
protection for his family that he can pay for, what is 
called renewable term insurance is the cheapest. 
This costs more than non-renewable term policies, 
because it includes the provision that the policyholder 



82 HOW TO BUY LIFE INSURANCE 

has the option of renewing the policy without medical 
examination. Under this plan the cost of insurance 
protection increases at the end of every term. If the 
policy is what is called yearly renewable term the pre- 
mium increases every year. If it is a 5 year renewable 
term it increases every 5 years, or if the term is 10 
years the premium rate increases every 10 years. 
These policies are usually issued for five or ten year 
terms, as the annually renewable policies require more 
attention and care on the part of the policyholder with- 
out corresponding advantage. 

Where a young man has good business prospects 
and requires a great part of his surplus earnings to 
create a home or to extend his business or for other 
necessary purposes, the only way that he can secure 
adequate protection for his wife and children is with 
a term policy, because he cannot afford to buy the 
necessary amount of protection in the more expensive 
policies. It should always be kept in mind that wheth- 
er the policy is a double endowment with an $85 
premium per thousand, or a single endowment for $51 
or a deferred dividend for $28, or a non-participating 
policy for $21, or a 10 year term for $15, or an annual 
term for $13, the amount of insurance protection is 
exactly the same and the payment to the widow of the 
policyholder is exactly the same — $1,000 in each case. 
What the additional premium charges are for is not ad- 



WHAT KIND OF POLICY TO BUY 83 

ditional life insurance protection either in security 
or in amount, but for a reserve which is necessary in 
3, level premium policy or for the promise of dividends, 
or endowment or other investment payments payable 
not to the beneficiaries after the death of the insured, 
but only to the insured provided he lives long enough. 
All term insurance is cheaper in early life and costs 
more in old age than if the insured takes out a straight 
life level premium policy. 

Level premium insurance is where the insured pays 
the same premium every year. Instead of the pre- 
mium rate increasing every year as in a yearly renew- 
able term policy, or every 5 or 10 years as in longer 
term policies, the rate is the same every year. Nec- 
essarily it is higher than the term rate in the begin- 
ning, and lower than the term rate in the end. The 
excess over the term rate in all the earlier years is re- 
quired to be set aside and invested. This is called the 
reserve, and in the Old Line companies it constitutes 
the bulk of the assets. It is in no sense a surplus, for 
every dollar of it and its interest represents an excess 
charge in youth to avoid the naturally high premium 
rate of old age. It is a liability as well as an asset. 
Since the average expectation of life of a man in good 
health at 21, is 41 \ years, tne payments for a level 
premium policy must exceed for the first half of this 
term, the cost of term insurance. Where a man is on 



84 HOW TO BUY LIFE INSURANCE 

salary or with a fixed income, which in reasonable 
likelihood will not increase more than the increase of 
his family requirements, a level premium policy is 
better for him to take out than a term policy. It 
costs more in the beginning, but he gets more pro- 
tection for the same annual premium in his old age. 

Any man could make his term insurance equivalent 
to a level premium insurance by simply taking the 
difference in cost and putting it in a savings bank to 
compound at 3 \ or 4 per cent, interest. If he did this 
regularly and systematically and kept from encroach- 
ing on his savings, he would be better off with a re- 
newable term policy than with a level premium poli- 
cy. If he died during the period when his level pre- 
miums exceeded the cost of term insurance, he would 
be the gainer by the amount of his accumulated de- 
posits in the savings bank. If he lived for a long time 
his savings bank deposits would be gradually drawn 
upon and eventually exhausted by the increase in 
the annual cost of his term insurance. The mathe- 
matics and bookkeeping involved in this process are 
too cumbersome for it to be successful with most 
men. 

So it can be stated in general as between these two 
forms of insurance that both are good, the renewable 
term is cheapest in the beginning and the level pre- 
mium is the easier to carry in the end. Which is the 



WHAT KIND OF POLICY TO BUY 85 

better to buy depends on the policyholder's income 
and prospects, on his family and business conditions, 
on his habits of thrift and self control. The weaker a 
man's will power and the more his likelihood to trench 
upon his savings, the better for him is the level pre- 
mium policy. 

But level premium policies are of many kinds, divi- 
ded into two general classes, non-participating or 
straight life and dividend, and the dividend policies 
are divided into annual and deferred dividends. 

A straight life level policy is the simple contract 
of the policyholder to pay so much money a year, the 
amount depending on his age when he insures and the 
company in return agrees on his death to pay his bene- 
ficiary the face of the policy. If the mortality is high- 
er than the American Experience Table, if the invest- 
ment returns are lower than the reserve estimate, and 
if the expenses of management exceed the expense 
loading, the company cannot call on the policyholder 
for any additional premium as in assessment insur- 
ance. Also the policyholder is entitled to no return 
of anything except in case he may surrender his policy 
and take its surrender value. If the mortality is less 
than the table the company gains; if the rate of in- 
terest it gets on its investments is higher than the re- 
serve rate, the company gets that sum; and if the 
actual expenses of management are less than the ex- 



86 HOW TO BUY LIFE INSURANCE 

pense loading, the company also profits by that. 

As it is obvious that any insurance company which 
exceeds its mortality table, falls below its reserve rate 
of interest and exceeds its expense loading must 
shortly become insolvent, it follows that in theory a 
dividend policy is better for the policyholder than a 
straight life policy. In fact all companies make their 
premium rate so high that there is only one of the 
standard recognized companies not conducting an in- 
dustrial business where the mortality is greater than 
the table and the investment return less than the re- 
serve requirement. The policyholder should get the 
benefit of both these; but in practice, mismanagement, 
dishonesty and extravagance, have so swallowed up 
the savings and overrun the allowance for expense 
loading, that it is only in some companies that the 
straight life policy is not cheaper than the dividend 
policy. The companies which sell both, charge more 
for a dividend policy than a straight life policy, and 
this excess charge, as a rule, amounts with interest to 
more than the dividends. 

The tables in the statistical appendix with the ex- 
planations of how to use them will enable the policy- 
holder to figure out these results for himself. It is not 
the province of this book to advocate one company or 
to condemn another. A company which under a 
capable and honest president is returning good divi- 



WHAT KIND OF POLICY TO BUY 87 

dends today might under his successor go to the other 
extreme. The dividends which any insurance com- 
pany pays depends on its management, just as the 
amount of dividends which a boot and shoe factory 
or a cotton mill, or a farm or store, depend on the sa- 
gacity, honesty and ability of its manager. When- 
ever investment in any shape is combined with life in- 
surance the investment part is no different from any 
other investment enterprise except in its excessive 
cost of management. 

Taking all the companies as they run and averag- 
ing their returns, a policyholder would do better to 
take out a straight life at the lower cost than a divi- 
dend policy at the higher cost. No policyholder 
should be willing to speculate in the honesty of the 
President and other officials of a life insurance com- 
pany. His speculations should be kept apart from 
his insurance protection. 

The annual dividend policy has the great advant- 
age over the deferred dividend forms in requiring an 
annual accounting. If the contract of the annual 
policy were definite so that instead of promising an in- 
determinate sum in dividends, it should specify that 
all mortality savings and all excess interest over re- 
serve requirements should be annually credited on 
the next premium, such insurance w r ould be cheaper 
in a well managed company than it could afford to 



88 HOW TO BUY LIFE INSURANCE 

sell straight life policies for. Such a policy would 
compel the management to keep within its expense 
loading and the table of excess cost of management 
over expense loading is conclusive proof of how lack 
of contractual responsibilities leads to extravagance 
at the expense of the savings to which the policyhold- 
ers are entitled. 

A life insurance contract, like any other form of 
contract, should be definite and complete. The man- 
ner in which dividends are to be computed should be 
definitely and not vaguely or deceitfully expressed in 
the policy. No man would in the ordinary business 
affairs of life make a contract with another man and 
give the other man the power to construe the con- 
tract. Neither should he do that same thing in life 
insurance when he accepts and pays an excess pre- 
mium for a policy which contains no definite provision 
as to what he will get for his excess payment. 

If the annual dividend companies would simply 
alter their annual dividend policies by agreeing to 
credit annually on the next premium all mortality and 
reserve savings, these would be the best and cheapest 
form of level premium policies to buy, but until they 
do what they should do, every policyholder in an Old 
Line company who decides on a level premium pol- 
icy should carefully investigate before paying higher 
premiums for future dividends. 



WHAT KIND OF POLICY TO BUY 89 

As regards the many forms of combination invest- 
ment policy the evils of these have been discussed in 
preceding chapters. Their disproportionate cost 
appears in the premium tables. There is no reason 
why a man should combine his investment and his 
life insurance in one policy and risk all his investment. 
If he dies any time during the investment period he 
forfeits all his investment savings. He should buy 
his life insurance protection by itself and invest his 
old age savings apart from his life insurance policy and 
in some manner that it will not have to bear its share 
of the heavy cost of life insurance management and 
administration. 

There are then three good forms in which to buy life 
insurance protection; in a fraternal society to which the 
holder already belongs or joins not for its life insurance 
but takes the life insurance protection as incidental 
to his membership. Because of its lack of stability 
this is not recommended as the sole dependence. 
Second, in a renewable term policy without medical 
examination for the renewal. Third, in a level pre- 
mium straight life policy. To which should be added 
an annual dividend policy, provided the company 
which issues it returns in dividends the mortality sav- 
ing and the reserve excess interest. 



CHAPTER VII 

What Company to Insure In. Tests of Stability 
and Solvency. 

THE selection of the company in which to insure is 
of great importance, but less so to-day than 20 
years ago when the solvency of a large propor- 
tion of life insurance companies was in doubt. Of the 
old established companies which have been doing busi- 
ness since before the panic of 1873, there is not one 
about whose present solvency there is any reasonable 
doubt. Of the newer companies which have been in- 
corporated since, some have succeeded and some show 
signs of failure. The well recognized companies do- 
ing a general business in all the States, have come to 
such a stage of experience and steady income that 
their solvency is assured beyond any possibility ex- 
cept a panic even more disastrous than that of the 
early seventies, a death rate higher than has been 
known for 200 years, or the wholesale dishonesty of 
their officials. 

As to the fraternal societies and other assessment 
organizations, the possible danger is more a lack of 
stability than insolvency. The symptoms of approach- 



WHAT COMPANY TO INSURE IN 91 

ing insolvency are so clear in any life insurance 
business, where the cause is other than hidden em- 
bezzlement, that the policyholders who have assess- 
ment or short term policies are in little danger of loss, 
and the holders of legal reserve policies are not likely 
to lose a high percentage of their reserve payments. 
The greatest danger to all such policyholders from 
failure or disintegration, is that their health has be- 
come impaired and that they will not be acceptable 
risks in some other company. 

To the holders of endowment, deferred dividend, 
gold bond, or other forms of investment policies, the 
solvency of a company is of much more importance 
than to the holders of straight life or term insurance. 
To the holders of investment policies their life insur- 
ance company has taken the place of a savings bank 
and its failure would be as disastrous to them as the 
failure of a bank in which their money was deposited. 
To the extent to which the assets were impaired they 
would have lost their money, with the additional de- 
duction for the expenses of a receivership and the 
scaling down of assets through forced realization. 
The man who is insured on the assessment plan or has 
only term insurance runs no such risk. The holder of 
a straight life policy risks only the amount of his re- 
serve assuming that he still is in good health. The 
man who holds an assessment or yearly term policy 



92 HOW TO BUY LIFE INSURANCE 

pays in advance or at stated times during the year for 
his year's insurance protection. The company must 
fail within the year and he must die within the year 
for him to be a substantial loser. 

This distinction is explained not as an argument for 
any one to take the risk of insolvency or instability, 
but to point out again from another point of view the 
advantages of pure life insurance policies over com- 
bination investment policies, and to reiterate that the 
risk is less in a pure life policy than in some other form 
of policy which combines life insurance protection 
with something else, no matter what that something 
else is. 

The best general tests of solvency are the annual 
balance sheets, and the best general tests of stability 
are the history of the company. This applies as well 
to assessment organizations as to Old Line com- 
panies. 

Traditions have a great effect in any business. Men 
brought up in any concern naturally tend to follow the 
practices and customs of that particular company. 
The natural promotions from subordinate clerkships 
to heads of the departments and on to be officers and 
managers of the company, perpetuate a certain con- 
tinuity of thought and action and sets standards of 
conduct. These may be departed from. A new 
President may throw the conservatism of his prede- 



WHAT COMPANY TO INSURE IN 93 

cessor to the winds. An old company may become 
speculative and a speculative company may become 
conservative, but the hereditary tendencies in any 
established business manifest themselves in about the 
same proportion as hereditary family tendencies. 
The child of a healthy father and mother will usually 
be healthy, the children of moral, well conducted, 
decent law-abiding parents will usually be up- 
right citizens. While disease may not be directly in- 
herited, the tendency to disease is, and the inheritance 
is as much a boon or a ban in a great business organ- 
ization as in a family. 

That makes the reputation and the history of any 
life insurance company worth the scrutiny of both pros- 
pective and present policyholders. Its history is 
made up of its balance sheets and annual statements 
and of its general reputation and flavor in the com- 
munity. To an extent a company can be judged by 
its agents. Agents know more about the details of 
life insurance than the average man. The conserv- 
ative agent naturally drifts into the employ of a con- 
servative company. A pushing, hustling man on 
going into the life insurance business gravitates into 
a pushing, hustling company. The man who is per- 
sonally untruthful, shifty in his statements, and evas- 
ive of his obligations, would naturally be the repre- 
sentative of a company of like nature. Such things 



94 HOW TO BUY LIFE INSURANCE 

are only indications, not conclusions or even proof. 
Some bad companies have good men among their 
agents and some excellent companies are represented 
in spots by bad agents. Primarily the agent is the 
only representative of the company whom the aver- 
age policyholder knows, and the only way that the 
average man can judge the personality of a company 
is through the man whom it has representing it. 

Volume of business alone is not proof of stability or 
solvency. The same business tests should be applied 
to this as to any other husiness. It is sometimes the 
case that the increased volume of business brings dis- 
proportionate cost and a line of trade that is not de- 
sirable. Where the additional business costs more 
than the expense of getting it and managing it, then 
the net result of the new business is not a gain, but a 
loss. 

In life insurance there must be a sufficient volume 
of business for the law of averages to work. A com- 
pany which insured only 10 men would be in constant 
danger of insolvency through the possibility that two 
or three of them might die the same year. A company 
which has insured 100,000 average men runs no risk 
whatever of any unusual mortality provided that the 
insured are distributed in different parts of the com- 
pany and represent the average of health and habits. 
It is the same law of averages which, if a coin were 



WHAT COMPANY TO INSURE IN 95 

tossed a great number of times would result in the 
same number of heads and tails, while if tossed a few 
times only it might be all heads or all tails. 

Few new life insurance organizations, whether in- 
corporated companies, or assessment or fraternal so- 
cieties, have in their early years anything like the av- 
erage death rate. Their medical examinations and 
inspections weed out the sickly, feeble, infirm and 
other bad risks, and it takes some years for this ef- 
fect of the initial medical selection to be neutralized 
by the tendency of all mankind to approximate the 
average. Hence, a company which has not been 
long in existence is confronted with the temptation 
to use the surplus through low death losses for its 
expenses of management and to fix salaries, create 
offices and start a general scale of expenditure be- 
yond that which its business warrants and the mor- 
tality of the future will permit. 

The starting of any life insurance organization is a 
more or less expensive undertaking. While its death 
claims at the beginning are low, its expenses of man- 
agement are high. For instance, the Citizens Life 
of Louisville, Ky., which was started recently tells 
in its first annual report of the receipt of $24,957 in 
premiums, and the expenditure of $23,197 in actual 
expenses of management, and $46 in taxes. Its ex- 
penses were over 92 per cent, of its premium receipts. 



96 HOW TO BUY LIFE INSURANCE 

None of its policyholders died and no policyholder re- 
ceived anything. This is not said to the disparage- 
ment of this particular company, which may in the 
course of time develop into a stable and efficient insti- 
tution, but it is cited as an example to the tendencies 
of a new company just starting out. Another way 
of making a start is that taken by the Reliance Life 
of Pittsburg, which began in 1903. In its first year 
it took in in premiums $128,049, it paid out in expen- 
ses of management $110,149 and in taxes $3,696. In 
1904 it took in in premiums $167,144 and paid out 
management expenses $272,177, taxes $3,067 and in 
death losses $6,334, making a deficiency of over 
$100,000 in its expenditures over its receipts in pre- 
miums. In this case the men who started the com- 
pany put up a subscribed surplus or guaranteed fund 
of $1,000,000, which will more than counterbalance 
this deficit. 

Other instances like this might be cited of the differ- 
ent ways in which new insurance companies begin do- 
ing business. They have no past and no history. 
They are not fully reported in the statistical ta- 
bles in the index, because they have nothing in the 
way of statistics to present except their initial busi- 
ness and that information is hardly of sufficient se- 
curity as to their future to warrant taking from them 
any other form of policy than an annual renewable 
or short term policy. 



WHAT COMPANY TO INSURE IN 97 

The same general suggestion would be made in re- 
gard to both incorporated companies and assessment 
organizations, recalling also the previous statement 
that an assessment organization which has fraternal 
ties is more likely to survive minor difficulties and 
mismanagement and extravagance than either a pure- 
ly assessment organization or an incorporated com- 
pany. The largest of the assessment organizations 
are 20 to 30 years old, although the Woodmen of the 
World and the Knights of the Maccabees of Port Huron 
which are only a little over 10 years old, have a large 
and growing membership and partly because of their 
youth they have a low death rate. The largest of 
the older assessment societies, the Royal Arcanum, 
the Foresters of Toronto, the Knights of the Maccabees 
and the Modern Woodmen, have all an increasing 
membership and a death rate which has not been 
growing at a more rapid ratio than the increasing age 
of the associations would indicate. 

The main thing to investigate about an assessment 
organization is that its assessments are high enough. 
There is no use of wasting time on any such investi- 
gation of the premium rates of any Old Line company, 
because the rates of all of them are high enough for 
safety. Rather should their premium rates be in- 
vestigated from the other point of view, whether 
they are not too high. 



98 HOW TO BUY LIFE INSURANCE 

Only a few of the premium rates can be printed in 
the statistical appendix, because to print them all 
would take a volume several times greater than the 
whole contents of this book. There are thousands of 
rates. While many of the Old Line companies sub- 
stantially agree upon certain premium rates, they do 
not agree upon their forms of policy, so that a full 
statement of the premium rates would have to in- 
clude a full statement not only of what the policy- 
holders now receive, but what they have received or 
may receive from the many complicated forms and 
options. 

The standard American Experience Mortality 
Table gives percentages below which life insurance 
cannot be safely sold. That is, it fixes minimum rates 
to which every Old Line company adds an allowance 
for expenses in selling term insurance, an additional 
allowance for straight life insurance, and other kinds of 
additional allowances to investment policies. In 
practice, the mortality of selected lives is below the 
American Experience, but the rate at which it falls 
below varies in different parts of the country, in differ- 
ent years and under different conditions. It varies 
not only in different companies, but in different 
schemes of insurance. It is not safe for any company 
initially to agree to sell life insurance protection for 
a less rate than the American table indicates. Above all 



WHAT COMPANY TO INSURE IN 99 

things the policyholder wants to avoid any uncertain- 
ty as to payment of the face of his policy. While in 
general a slightly lower rate than the American table 
would provide for the mortality loss the simpler and 
safer way is to pay the full value and then if there is 
an overcharge, to have it credited by the omission of 
a part of the payments by an assessment company or 
the refund of the excess annually by an incorporated 
company. 

At the age of 21, the average number of deaths per 
thousand is 7.85. Several assessment organizations: 
the Modern Woodmen, The Foresters of Toronto, the 
Maccabees, and a few others, had an average death 
rate in 1904 of less than the average death expect- 
ation at 21. This low death rate cannot continue ex- 
cept by the constant geometrical increase of healthy 
young lives which cannot keep up indefinitely. For 
instance, the Modern Woodmen had in 1894, 114,945 
members. The organization was then 10 years old, 
and had a death rate per thousand of 4.59, or half the 
American Table Expectation of death at the age of 
36. In the 5 years from 1894-1899 the Woodmen's 
membership almost quadrupled to 428,361. Its 
death rate dropped a little from 4.59 to 4.52. If this 
low death rate should continue, with a stationary mem- 
bership, it is obvious that some members would live to 
be over 200 years old. The next five years its mem- 



100 HOW TO BUY LIFE INSURANCE 

bership grew largely but in a smaller ratio of increase, 
to 660, 952. Its death rate promptly showed the in- 
creasing average age of its members by rising from 
4.42 to 5.65. 

The Woodmen is taken as an example of this act- 
uarial law because it has remarkably low death rate 
and a large membership. To prevent the death rate 
from increasing it would have to take in every year 
enough additional young men as members to keep the 
average age of the members constant, which is a phys- 
ical impossibility. 

Another way of keeping the death rate down is to 
eliminate the old members by assessing them exces- 
sively. In the present readjustment of rates by the 
Royal Arcanum it is complained by some of the older 
members that they have been called upon to pay bur- 
densome assessments. Doubtless the assessments are 
more burdensome than they were. But had the as- 
sessments been properly adjusted in the beginning 
there would have been no occasion to readjust them 
now. The Royal Arcanum is seven years older than 
the Modern Woodmen. While the Woodmen's mem- 
bership has sextupled in the past 10 years, the mem- 
bership of the Royal Arcanum has hardly doubled. 
Therefore the average age of the members of the Roy- 
al Arcanum is necessarily considerably higher than 
the Woodmen. This results in a higher death rate, 



WHAT COMPANY TO INSURE IN 101 

the Arcanum death rate in 1904 being 10.41 per 
1,000. This is not a high death rate, but only 
what the American Experience calls for for men 
at the age of 42. There is nothing in it to cause 
doubt as to either the stability or the solvency of the 
Royal Arcanum, but it is proof that the rates in the 
Royal Arcanum based on its early experience are con- 
tradicted by its latter experience and that it is not 
safe for any life insurance organization to make con- 
tracts in advance on a much lower basis than long and 
approved experience indicates. 

Just the contrary examination should be made of 
Old Line companies than of th e assessment plan. An 
assessment association is prone to promise too much 
for too little. Most old line companies promise too 
little for what they charge. Their rates go as much 
above the American Experience Table as the Frater- 
nal assessments go below it. Instead of giving their 
policyholders the benefits of lower mortality, of the 
weeding out of bad risks by medical examinations, 
and of interest returns higher than the reserve re- 
quirements, too many of the Old Line companies 
take these excess charges which should be returned or 
credited to the policyholder and use them to add to 
an already inflated expense allowance. Since most 
of these companies have been doing business for some 
years, the statistical tables are most valuable in ex- 



102 HOW TO BUY LIFE INSURANCE 

posing these practices. The comparative figures are 
taken from the company's own reports which can 
surely not be charged with having errors to their dis- 
advantage. Indeed the New York Legislative Inves- 
tigation proved that full, faithful and accurate reports 
by some of the largest companies would be much more 
to their disadvantage than the figures which the author 
has taken from their sworn reports to the Insurance 
Departments of the different States. 

As between the different companies the author has 
no advice as to this or that particular one. It is ob- 
vious that a company which spends 56 or 78 or 92 per 
cent, of its premium receipts for its expenses of 
management cannot give the policyholder the same 
life insurance protection for the same amount of 
money as can a company whose expenses of manage- 
ment are only 15 or 17 or 18 per cent, of its premium 
receipts. All the income of an insurance company 
comes from the policyholders. That part of it comes 
in interest on assets already accumulated and part 
in premiums does not vary this statement because the 
assets are only the excess of preceding premium pay- 
ments over preceding expenditures, and the interest 
on them is necessary to keep up the reserve require- 
ments. If the company spends half of its receipts in 
expenses, the policyholders are only two-thirds as 
well off as if the company spent only one-quarter of 



WHAT COMPANY TO INSURE IN 103 

its receipts in expenses of management. The more 
the agents and officials take for themselves the less 
there is for the policyholder. There is no getting 
away from this. 

Where the policyholder has a fixed premium policy, 
either term or straight life, the extravagance of the 
officials of the company does not concern him so long 
as they can succeed in getting in enough investment 
and deferred dividend policyholders every year to 
supply with their overcharges and excess premiums 
the deficiencies which extravagant management 
would otherwise make apparent in an impaired re- 
serve. But the term or straight life policyholder 
may feel assured that a company which will waste the 
money of the holders of other forms of policies will 
not do justice by him, and that in the construction of 
his policy and in the application of its provisions to 
him and his beneficiaries, he will be dealing with a 
management whose standard of business honor is 
lower and whose regard for his interests is less than a 
company which is economically managed in the in- 
terest of all the policyholders, and gives the policy- 
holders instead of the officials and agents the benefits 
of a low mortality, good investments and careful ad- 
ministration. 



CHAPTER VIII 

The Cost 

EXCEPT in a few fraternal societies the cost of 
life insurance protection varies according to the 
age of the insured. The variation may appear 
from year to year in gradually increasing premiums, or 
it may be commuted into a fixed premium based on the 
age at which the policy is taken out. In either case 
the premium cost is based on actuarial computations 
which take into account the mathematical and ex- 
perience facts, full regard for which is necessary to sol- 
vency. 

It may be well to explain the mathematical pro- 
cess of fixing actuarial premium rates which, to many 
policyholders, is somewhat of a mystery. All insur- 
ance is merely a distribution of loss to which each 
policyholder contributes an amount sufficient to cover » 
the expenses of management in addition to the actual 
losses of the insured. In fire insurance the compu- 
tation of cost is somewhat arbitrary since there is no 
even ratio of fire losses year by year like the death rate, 
and provision has to be made against great conflagra- 
tions and also against the moral risk. It is well known 



THE COST 105 

that the percentage of fire losses is higher on insured 
property than uninsured property. It is also higher 
on property subject to foreclosure and on heavily 
mortgaged property than on houses which are free 
and clear. Every fire insurance company has a black 
list of men whose property it will not insure at any 
price because in its judgment they are addicted to the 
fire habit. This is an important item, and the in- 
ability mathematically to calculate a moral risk pre- 
vents the same scientific treatment of fire premiums 
as would be possible were the fire losses of even and 
regular occurrence. 

In life insurance the moral risk is so slight as to 
form no part of the premium cost. The men who 
take out life insurance policies with the deliberate in- 
tention of committing suicide, are so few in number as 
to be unappreciable in practice. Originally almost 
all life insurance policies contained a clause ex- 
empting them from payment in case of suicide, but 
gradually this clause has been modified to apply 
only to suicide within one or two years after taking 
out the policy, and in a few companies the suicide 
clause is entirely omitted. The deaths by suicide 
of old policyholders are treated as are deaths by dis- 
ease or accident. Their percentage does not vary 
greatly from year to year, although like deaths from 
heart disease and nervous diseases, deaths from sui- 



106 HOW TO BUY LIFE INSURANCE 

cide are increasing, while on the other hand deaths 
from contagious diseases are diminishing. The strain 
and stress of modern life are increasing the death rate 
in certain directions about enough to counterbalance 
the decrease which increased medical science and skill 
are effecting in other directions. 

The basis of the cost of all life insurance is the mor- 
tality rate. This is beyond human power to alter. 
Good judgment in making investments may increase 
the interest rate on the assets. Careful, economical ad- 
ministration will lower the expenses of management. 
These two items are more or less subject to human 
control. But as regards the death rate the only bene- 
ficial effect that the best management can have upon 
that is in the organization of the medical bureau and 
in the careful examination of prospective policy- 
holders. Too much importance in the popular mind 
is attached to this. The effect of a careful medical ex- 
amination and the sifting of prospective policyholders 
is very apparent in the first few years' experience. 
But this initial variation tends to diminish every year 
and the death rate of policyholders tends to approxi- 
mate in old age the general experience of the past. 

In practice the average death rate of policyholders 
is less than the average death rate of the community. 
In all the largest assessment societies and in all the well 
established Old Line companies the death rate is less 



THE COST 107 

than the American Experience Table. In some cases 
it is very much less. Some new companies have had 
no deaths at all in the first year or two. But as the 
table printed in the appendix proves the tendency is 
for the death rate gradually to increase, not only in 
proportion to the increasing age but in a greater pro- 
portion than the increasing age until it more nearly 
neutralizes the initial effect of the medical examina- 
ation. Some of the best managed companies have a 
death rate approximating the American Experience. 
The Connecticut Mutual, which has been one of the 
most carefully managed of the Old Line companies, 
has the highest percentage of death losses to total in- 
surance. This is not to the discredit of the Connec- 
ticut Mutual. It is proof that it has retained its mem- 
bership substantially intact until its members 7 poli- 
cies were terminated by death instead of by lapse or 
surrender. Through its small volume of new business, 
little more than enough to replace the annual losses 
by death and cancellation, the average age of its mem- 
bers has increased and the death rate in proportion 
to the total insurance has of course increased. 

The death payments' proportion to the total 
amount of insurance is not in itself a sign of either 
high or low mortality, The death rate per thousand 
at 52 is twice the death rate per thousand at 21. A 
new company insuring selected young lives should 



108 HOW TO BUY LIFE INSURANCE 

show a death rate per thousand half that of an old 
company. The test is the ratio of the death rate to 
the American Experience, combined with the age and 
volume of new business of the company, the tenden- 
cy being to approach more nearly to the American 
Experience as the company grows older. 

Of more lasting effect than the medical examina- 
tion in keeping down the death rate of policyholders 
is the nature of the men who take out life insurance 
policies. In the first place no man can take out a life 
insurance policy of any kind who has not the money 
to pay for it. He must have an income larger than 
his living expenses before he can insure. A man who 
is shiftless or incompetent or has bad habits, may pass 
a medical examination, but he is much more likely 
to fail in the financial requisite of having the money 
available to pay his premiums when they are due. 
The same physical habits which bring steady employ- 
ment and an assured income also tend to good health 
and long life. 

Again, a man of bad morals or loose living, careless 
of his family ties and seeking more self indulgence 
than the future safeguarding of his wife and children 
is not likely to insure. He might from a medical 
standpoint seem a better risk than his neighbor, but 
the moral qualities which permit neglect of the future 
of his wife and children will in their personal workings 



THE COST 109 

tend to shorten his life. So powerful in their lon- 
gevity results are the habits and the moral standards 
of men that life insurance experts would almost as 
lief insure the average men who desire life insurance 
protection, as the selected risks who have heen in- 
duced by the agent's solicitations to submit to a med- 
ical examination. The judgment of some able life 
insurance officials is that the voluntary applicants, 
provided they would tell the truth about their phys- 
ical condition and any hidden ailments, would be 
almost as desirable in the long run as the selected med- 
ical risks. 

The mathematical process of computing premium 
payments is based on the natural premium or the mor- 
tality cost of an annual term policy which is simply the 
percentage per thousand which the American Exper- 
ience indicates at the age of the insured. At 21 that 
would be $7.85 per thousand dollars of insurance; at 
25, $8.06; at 35,$8.95; at 40, $9.79; at 45, $11.16; at 
50, $13.78; at 55, $18.57; at 60, $26.69; at 65, $40.13; 
at 70, $61.99; at 75, $94.37; at $80, $144.47; at 85, 
$235.55; at 90, $454.54. At 95 the term rate would 
be $1,000 for one year's premium, as the American 
Table theoretically contemplates that no one will live 
to be over 96. In the elaborate mathematical actua- 
rial calculations there is a few cents deduction from 
these rates through the premium being paid at the 



110 HOW TO BUY LIFE INSURANCE 

beginning of the year and the deaths occurring during 
the year. But the difference is too trifling to be con- 
sidered except in an actuarial hand-book. 

Level premiums are based on these same figures but 
they are equalized so that the policyholder pays the 
same sum every year instead of increasing every year. 
The man who insures at 21 on the level premium basis 
must pay $14.80 instead of $7.85. For the next 30 
years he will pay more every year than the annual 
rate, but from the age of 52 on, the annual rate in- 
creases by leaps and bounds in excess of the level rate. 
The difference between the two is merely an advance 
payment by the policyholder to offset the necessity for 
a much greater advance should he live long. A leve 
premium never changes while the premium of the man 
who insures at the natural rate keeps changing annu- 
ally. Both amount to exactly the same sum at the 
end of an average life, the interest on the excess pay- 
ments being included in the level premium total. 

The amount of the net level premium is computed 
by first ascertaining the single payment which would 
provide for one thousand dollars of insurance payable 
at death. This amount varies according to the re- 
serve basis, some reserves being on a three percent, 
basis and others on a three and a half per cent, basis. 
Of one hundred thousand boys at the age of 10, 
91,914 are alive at 21. Half of those living at 21 live 



THE COST 111 

to be 67, but the death rate is so much more heavy 
after 67 than between 21 and 67 that the average 
expectation of life at the age of 21 is considerably 
less than 46 years. 

Such a sum must be charged in one advance pay- 
ment as is equivalent, with interest, to the face of the 
policy based on a date of average maturity. For a 
young man of 21 the payment in advance of $336 
would, compounded, amount to $1,000 at the average 
time of death, three per cent. being taken for the basis. 
If 3 J per cent, is the interest, a smaller advance pay- 
ment would suffice. The higher the rate of interest, 
the smaller the initial payment. This is what is 
meant by the single premium, although in practice 
to this net cost is added the expense allowance. A 
single premium with compound interest is exactly 
equal to the natural premiums each with compound 
interest. 

A level premium is simply the amount of this net 
single premium with compound interest distributed 
evenly over a series of years instead of unevenly as by 
annual term insurance. In the end, whether the in- 
sured pays for his protection on an annual advancing 
scale, by a level premium, by a single premium, or 
by 10, 15 or 20 payments, the mathematical cost 
on the net basis is exactly the same. 

The premium tables in the appendix tell the actual 



112 HOW TO BUY LIFE INSURANCE 

premiums, not the net premiums. The net annual 
rate has been summarized in a preceding paragraph. 
The single premium and the level premium on the 
basis of 3 per cent, interest are for the corresponding 
ages (cents being omitted) twenty-one $335 and $15; 
twenty-five $356 and $16; thirty $386 and $18; thirty- 
five $420 and $21; forty $459 and $25; forty-five $505 
and $30; fifty $555 and $36; fifty-five $609 and $46; 
sixty $667 and $58; sixty-five $723 and $76; seventy 
$777 and $101; seventy-five $834 and $137; eighty 
$869 and $193; eighty-five $905 and $293; ninety 
$945 and $503. 

The theoretic cost of an endowment or an annuity 
policy is arrived at by a similar but reversed compu- 
tation. A combination life insurance and endow- 
ment policy is theoretically the addition of the term 
rate for life insurance protection and the cost of a 
simple endowment. In practice no endowment 
policy is sold at this price, both the net term rate 
and the net endowment rate being increased by an 
expense loading. 

In theory a simple endowment is the reverse of a 
life insurance policy. It is based on the same mortality 
tables reversed in their application; that is, a simple 
endowment would contract to give its holder the 
amount that he paid in with compound interest plus 
the net cost of life insurance protection during the 



THE COST 113 

same period. The payment of $680 at the age of 30 
would amount, compounded in 10 years at 3 per cent, 
interest, to a little over $900. If it were put in a sav- 
ings bank at that rate the depositor would receive that 
amount back. If he could buy simple endowment 
without any other cost for expenses of management or 
profit to the insurance company he would receive in- 
stead of $920, $1,000; the difference being the value 
of life insurance protection during that time which 
was reversed in his favor, for in case he should die 
during the endowment period he would receive noth- 
ing. As the expense loading on the endowment policy 
averages over 20 per cent, taking the average expenses 
of the Old Line companies, and the savings bank 
interest would be 3| or 4 per cent, instead of 3, it is 
therefore apparent that any form of endowment policy 
is more costly than its benefits, and that the pur- 
chaser would be better off to deposit his money at in- 
terest than to buy an endowment policy with it. 

Besides this theoretical mortality cost, every poli- 
cyholder pays an additional sum which varies accord- 
ing to the nature of his policy and the company in 
which he is insured. Except some assessment organ- 
zations no policies are issued with premiums equal 
to, or less than this theoretic cost. To all other poli- 
cies there is an addition for expenses called the ex- 
pense loading. This addition averages 25 or 30 per 



114 HOW TO BUY LIFE INSURANCE 

cent. In some forms of policies it is higher, and there 
may be a few forms in which it is lower. This ad- 
dition is made not only to the cost of the life insurance 
but to the cost of the investments. It is this which 
makes it impossible for an investment policy to re- 
turn the same compound interest returns as an ordi- 
nary investment. 

The savings banks of New York State have more 
assets than the three greatest insurance companies. 
Their expenses in 1904 were $4,441,026. The expen- 
ses of the three largest life insurance companies, the 
Equitable, the Mutual, and the New York Life were 
for 1904 $50,950,308. The number of their policy- 
holders almost equals the number of depositors in the 
New York State savings banks. The cost of manage- 
ment of each of the depositors' account was $1.81. 
The cost of managing each policyholder's account 
averaged $23.76. 

This is not cited to the particular disparagement of 
the three largest companies, because there are smaller 
companies which could be selected to make a more un- 
favorable comparison. It is proof that the cost of 
management must be paid in addition to the actual 
disbursements to the policyholders, and that it is nec- 
essarily added to the premiums. The average cost of 
management in 1904 of these three companies was 
$45.83 for each $100 they paid the policyholders. 






THE COST 115 

The comparison between savings banks and life in- 
surance companies is unfair to the life insurance com- 
panies, but they invite it when they ask their policy- 
holders to make them their savings bank and promise 
equal returns on an investment basis with savings 
banks. The proper business of a life insurance com- 
pany is to fix its premiums on a just safe basis, to col- 
lect them, to invest safely the reserve which a level pre- 
mium policy requires and to pay back to the policyhold- 
er all the premium and investment receipts less the low- 
est cost of management consistent with intelligent 
and safe administration. That is exactly the business 
of a savings bank; to take its depositors' money, to 
invest it at the highest rate of interest safety permits, 
and to return it and its interest less the lowest cost of 
management consistent with safe administration. 

But the cost of management of a life insurance com- 
pany must always be greater than that of a savings 
bank. The cheapest managed life insurance company 
in the United States costs several times the percent- 
age of a savings bank. The medical examinations, 
the literature, the maintenance of several offices, the 
proper investigation of death claims and all the ma- 
chinery of life insurance administration cost money 
even where no agents are employed. 

The subject of the agents and their commission 
will be treated more fully in a chapter by itself. The 



116 HOW TO BUY LIFE INSURANCE 

object of this chapter is to explain the basis of life in- 
surance cost and the manner in which different life 
insurance organizations arrive at the figures of their 
premium rates. 



CHAPTER IX 
How to Pay It 

IT has been assumed so far in this book that the 
policyholder continues his premium payments as 
long as the policy requires. In a renewable term 
this would be until the high rates of old age. With a 
level premium policy it will be until death. In an 
endowment or combination investment policy it will 
be until the expiration of the payment term. 

In many cases this assumption is not the fact. 
Many policyholders drop out, some because of their 
disgust with the workings and returns of their policies, 
but many more because of the sheer financial inability 
to meet the cost. A life insurance solicitor receiving 
his compensation on the commission basis naturally 
tries to sell policies of large amount. Also since his 
commission in many companies is higher on invest- 
ment and deferred dividend policies than on the cheap- 
er forms of life insurance protection, he pushes the 
sale of the costly policies. 

Besides the agent's persuasions the policyholder is 
prone to assume more obligations than he can always 
fulfill and he is also likely to put all his life insurance 



118 HOW TO BUY LIFE INSURANCE 

in one form and in one policy. There are a few men 
whose earnings and income do not fluctuate. There 
are no men who have not fluctuating demands upon 
their earnings and income. The result is the same 
whether the income diminishes or the imperative de- 
mands upon it increase. It is seldom that a man's 
family expenses diminish unless a smaller income 
forces their reduction. It is also seldom that an in- 
creased income does not bring about a somewhat 
more expensive scale of living and a greater total of 
family expenditure. The man who can regularly set 
aside all his surplus income or additional earnings 
and keep down the expenses of himself and his family 
rigidly to the same amount as when he was earning 
less, is a rare exception to ordinary human experi- 
ence. These basic facts of human nature should be 
never regarded so thoroughly as in considering the 
assumption of a life insurance contract and provid- 
ing for the cost of it. 

Almost all life insurance companies make loans on 
all forms of their policies except short term insurance. 
They are safe in their security because they never 
loan over the excess payments which they have col- 
lected to meet the reserve requirements. In their 
advertisements some of these companies dilate on the 
advantages of their liberal loan policy and many poli- 
cyholders assume a more expensive policy than they 



HOW TO PAY IT 119 

would otherwise take, on the assurance that after pay- 
ing a few years future premiums can be paid by loans 
for the company. 

Besides the agent's persuasion and the temptation 
of the loans and surrender values offered, the greatest 
cause of policyholders not continuing their policies is 
the ordinary vicissitudes of life. The loss of employ- 
ment, family sickness, unfortunate business ventures, 
bad crops, unwise speculations, scores of happenings 
which come in one or another form to most men, put 
them in a financial position where they cannot con- 
tinue their premium payments. In some companies 
this falling off of policyholders amounts to more than 
half, In a few companies it runs as high as three 
fourths. In all companies it is one of the greatest 
sources of loss to the policyholders from which in 
turn the companies profit more or less. 

Except in the feeling of security which it gives the 
protection of life insurance is not really valuable until 
the policy matures. Its value to its beneficiary is only 
when it matures. It is therefore essential not only to 
provide requisite life insurance protection, but to ar- 
range carefully some way to pay for it and the worst 
way to arrange to pay for it is to take out a more ex- 
pensive policy than a man can afford with the expect- 
ation of paying premiums by borrowing money on it. 

Life insurance should form part of a general sav- 



120 HOW TO BUY LIFE INSURANCE 

ings plan. Its amount should not demand all the 
savings because then there would be no margin or lee 
way. Also the amount set aside for life insurance pro- 
tection should not be impaired by expending it on 
costly investment policies, but used to secure the 
greatest amount of safe life insurance protection at 
the lowest premium cost. A man must have some 
saving capacity or he cannot take out a life insurance 
policy, put any money in a savings bank, buy a 
home or do anything else which requires a surplus 
over his expenditure. These are all desirable things, 
but they all cost money and no man whose personal 
and family expenses equal his income can get any of 
them unless he reduces his expenditures or increases 
his earnings. 

These three things should be considered together, 
and not separately: first, life insurance protection, 
second a home, third savings. As the life insurance 
protection is in one sense the cheapest and its contin- 
gent value is the greatest in proportion to its cost, it 
should be placed first and the other two regarded as 
supporters and bolsters of the life insurance protec- 
tion. If it is a question of whether to buy instead of 
rent and take out a life insurance policy or of putting 
the money in a savings bank or paying life insurance 
premiums with it, the life insurance should always be 
put first. But it should not be put first to the ex- 



HOW TO PAY IT 121 

elusion of the others nor taken to such an amount that 
there is no reserve saving capacity to fall back upon. 
If every man with a wife and children starts out 
with a purpose of protecting them against want, of 
sheltering them in a home of his ow T n and of provid- 
ing them and him against sickness or old age, he will 
naturally apportion his saving capacity to try his 
best to do all these things. 

How much they can save few men know till they have 
to. Many a man with a good income and prosperous 
circumstances thinks that he and his family are living 
as economically as they can and that the margin of his 
savings could not be increased, but if his income were 
to be reduced below his present expenses, necessity 
would compel him and his wife to find a way to live 
within that. Meanness and niggardliness are the op- 
posite faults in expenditure to those which most 
American families manifest. Even the ordinary econ- 
omy which business competition compels in business 
life is practiced in few American homes. The shop- 
keeper whom his competitors force to look after every 
item of his expense, to buy the cheapest and to sell 
on a narrow margin, rarely carries these principles into 
his family expenditure and even if he attempts to there, 
he is less likely to apply them to his personal expendi- 
ture. The manufacturer does not practice in his 
home what he insists upon in his business. Men on 



122 HOW TO BUY LIFE INSURANCE 

salaries live as if their salaries were sure to increase 
and never to diminish. A farmer gauges his expendi- 
tures on his prosperous years and too often tides over 
bad years by borrowing instead of fixing his scale of 
living on the bad years and saving the surplus in the 
years of prosperity. 

If a man postpones setting aside his savings until 
after his personal and household expenditure, the sav- 
ings will suffer. The first rule is to do the saving first. 
A man on salary should pay his life insurance pre- 
mium and his deposits in a savings bank before he pays 
his current bills. If his salary is $100 a month and he 
decides to save $20 he will find that unless he pays the 
$20 first to his savings account there will be some ad- 
ditional expenditure, some personal luxury, some 
household item which will cause that month's general 
expenditures to exceed $80, and will encroach upon 
the $20 savings. The only way to keep the savings 
account going is to regard it as the most insistent and 
inexorable creditor of all and to pay it first. If the 
butcher's bill is high cut down the supplies from the 
butcher; if the grocer's bill goes over its apportion- 
ment get along with less groceries; if the cigar account, 
the entertainment account, the clothing account, 
or any one of the multitudinous items of ordinary 
general expense runs over what it should, cut that 
down or cut down some other item of general ex- 



HOW TO PAY IT 123 

pense instead of encroaching on or borrowing from 
the savings fund. 

To take the case of the hundred dollars a month man 
because it is a simpler illustration where the income is 
a regular salary. His saving capacity should be $240 
a year; if anything more, rather than less. Six 
thousand dollars at four per cent, would return an 
amount equal to his saving capacity. At the age of 
30 he could buy this amount of insurance protection 
for $75 a year, taking the cheapest form of policy — a 
yearly renewable term. The first cost of a 10 year re- 
newable term would be only $9 more at first and he had 
better take that, as it costs no more in the end and 
simplifies his arithmetic. This amount of insurance 
protection would cost J of his savings, that is by pay- 
ing J of what he can save to an insurance company he 
has a guarantee that should he die within 10 years, 
his saving capacity will be continued permanently 
for the benefit of his wife and children. He should not 
take the w 7 hole six thousand dollars in one company, 
and by no means in one policy. This protection 
would be for 10 years only; if he desired to continue it, 
it would cost him over $100 a year for the next 10 
years and almost $200 a year for the 3rd 10 years. 
It would not be advisable in a permanent savings plan 
to rely solely on this. 

Besides this cheapest form of insurance protection 



124 HOW TO BUY LIFE INSURANCE 

he should provide for permanent protection no matter 
when he dies. A level premium policy does this. The 
level premium policies as has been explained before 
are of three kinds, non-participating, annual dividend 
and deferred dividend. 

With a non-participating policy he is certain of the 
exact amounts which he will pay and receive. With 
an annual dividend policy in a company with a low 
expense rate and honestly and intelligently managed, 
he will receive insurance protection at about the same 
cost, a little more for the first few years and a little 
less later on in life, than if he had a non-participating 
policy. A deferred dividend policy is not advised for 
the reasons already stated. 

Assuming that one-third of the savings are paid in- 
itially for term insurance, there are § to be used for 
other purposes. One of these two-thirds should be 
used to buy from a conservative trust company a non- 
forfeitable endowment which matures either at a fixed 
future date or at death and which cannot be sold or 
borrowed upon. The difference between this form of 
endowment and a combination endowment policy is 
that where a pure endowment policy is sold, whether 
in connection with or without life insurance, the holder 
must live the full endowment term to receive anything 
and if he dies before the expiration of the endowment 
period he forfeits everything, both payments and in- 



HOW TO PAY IT 126 

terest. By buying a non-forfeitable endowment 
from a trust company where no medical examination 
is required and the time of death is immaterial to the 
contracting company, the holder takes no risk except 
the solvency of the company, which of course he 
should examine most carefully. An endowment con- 
tract of this nature is a protection against old age. It 
also adds to the amount of life insurance protection 
and the regular requirements of payments for it are as 
insistent as by a life insurance company. 

The other third of the savings should be put in the 
savings bank where they can be used at any time 
should emergency demand. Wherever a man's em- 
ployment or the stability of his occupation warrants 
it, the savings bank account should be looked forward 
to as the foundation stone of the family home. It 
should grow into the ownership of a house which would 
be the property of its occupiers and which would also 
add to the protection which the life insurance policy 
would help make permanent. Membership in a Build- 
ing and Loan Association could well take part of the 
Savings Bank third. These associations, in helping 
their members to build their own homes are of great 
value, but the man who puts part of his savings in one 
of them should be sure that it is controlled by his neigh- 
bors and himself, and thatits management, invest- 
ments and loans are subject to their and his personal 
scrutiny. 



126 HOW TO BUY LIFE INSURANCE 

This savings bank fund should be in as many ac- 
counts as there are members of the household. The 
wife should have her account and the children should 
have theirs. If in the management of the business 
affairs of the household partnership which come under 
her personal supervision the wife is enabled to make 
some saving and to have a little surplus, that should 
be hers, and it should go into her own savings ac- 
count. 

The $100 monthly salary or the earnings or the in- 
come of the husband, whatever they may be, are as 
much his wife's and his children's as they are his, and 
in the apportionment of their expenditure it should 
be made to the personal and individual interest of 
every member of the household to practice economy 
and thrift. 

But to return to the more specific subject of how to 
pay the cost of life insurance from the general saving 
scheme of which it is the most essential part. Every 
year the difference between the cost of annual term 
insurance and of level premium insurance should be 
used to buy a level premium insurance policy. A 
thousand dollars is plenty large enough for any one of 
these policies. It should be dated on the day that the 
month's salary comes in or that the return for the 
crops is due or when some other receipt of money is 
expected. This premium will be between seventeen 



HOW TO PAY IT 127 

and twenty-five dollars according to the company and 
whether the policy is a non-participating or a dividend 
policy. At first the premiums should be fixed semi- 
annually so that each thousand dollar policy would 
cost only $10 twice a year. Any man can afford to 
pay that much. Even if the income is $200 a month 
or $500 a month instead of $100, or if it is $50 instead 
of $100, the advice is the same to take out small poli- 
cies. Only keep on taking them out,. 

Assuming that the initial protection has been pro- 
vided for by a low priced term policy , it should be con- 
sidered that this policy will cost more from time to 
time while a level premium policy does not, and it 
should be arranged gradually to take out level pre- 
mium policies in addition to term insurance. Avoid 
all single premiums or 10 payment or 20 payment or 
anything except these two primary forms of insurance. 
If a man is a member of a fraternal association which 
insures the lives of its members he might well place 
part of his insurance with it. But he should first 
thoroughly assure himself of its stability and sol- 
vency. 

By this method his insurance protection would 
gradually increase every year. As the term insurance 
became too costly it could be dropped, its place being 
taken by the results of the endowment which would 
have matured before the term rate became very high. 



128 HOW TO BUY LIFE INSURANCE 

The other insurance would be continued until its ma- 
turity at death. 

This provides for a series of small payments in- 
stead of big lump payments. It provides for a grad- 
uation of savings in different forms so that adversity 
would not affect them all. It gives more insurance 
protection at all times than an expensive policy and it 
guards against the forfeiture or lapse which so often 
eventuate from high premiums. 

It is what any man can do and what every man 
should do. The savings bank deposits and the endow- 
ment fund would both have to be swept away before 
the insurance protection became vulnerable. Even 
then the insurance protection would not be all bound 
up in one policy but distributed in a number of com- 
panies and policies, some of which should certainly be 
held until the last. 

And to hold insurance protection intact, the policy- 
holder should see that every policy which he takes out 
prohibits him from borrowing money on it, or from 
forfeiting it, or from surrendering it, and contains the 
sole guarantee that should his premiums be paid in 
full, his wife and children will receive the full face of 
the policy, and should the premiums not have been 
kept up, they will receive whatever protection he has 
already paid for. Let his policy contain only that 
and nothing more, and he will have removed any op- 



HOW TO PAY IT 129 

portunity of yielding to any temptation or adversity 
to deprive his wife and children of the last protection 
which he in his more prosperous days had provided 
for them. 



CHAPTER X 

Explaining the Technicalities 

Forfeitures and Lapses, Surrender Values, 

Reserve, Surplus, Paid up Insurance and 

Other Insurance Terms Defined. 

LIKE every other business life insurance has devel- 
oped a terminology of its own. Its technical 
terms are well understood by every agent and 
insurance man but they have little more intelligible 
meaning to the public than the terms used in chemis- 
try or geology or botany. There is no necessity for all 
these technical expressions, and when life insurance 
companies restrict their business to the simple sale of 
pure life insurance, the occasion to use so many technic- 
al terms will vanish. However, they are of common 
occurrence in life insurance literature, they appear in 
almost all life insurance policies, they are fluently 
used by the agents and the public are entitled to un- 
derstand them. 

A life insurance policy is the printed contract be- 
tween the company which assures and the policy- 
holder. It is the only contract which the policy- 
holder has. He has no rights except what this printed 



EXPLAINING TECHNICALITIES, ETC. 131 

contract give him. He is supposed to be thoroughly 
familiar with all its provisions and should there be any 
dispute, any court in which he brings suit will simply 
construe the printed policy. Nothing the agent says 
or any literature which the agent may give the policy- 
holder form part of the policy unless the policy itself 
says so. 

The policyholder is the man who makes the con- 
tract and who is usually the one whose life is insured. 
In a business transaction where a man has an insurable 
interest in another's life he may become the holder of 
a policy on another man's life, but in the few cases 
w T here this is done it is usually by assignment, the in- 
sured being almost invariably the policyholder. An- 
other exception to this is in the insurance of infants 
in industrial companies which is a form of gambling, 
as no one can financially have an insurable interest in 
an infant's life unless the infant is a freak earning 
money in some show. 

The beneficiary is the one whose name is inserted in 
the policy, as the recipient of the payment should the 
policyholder die during the life of the policy. The 
beneficiary may be either irrevocable or revocable. 
Where a man is insuring for his wife's benefit he should 
take pains to be sure that she is an irrevocable and 
not a revocable beneficiary, as there is a question in 
some states whether, when a policy is subject to as- 



132 HOW TO BUY LIFE INSURANCE 

signment and revocation a policyholder who becomes 
insolvent or in debt is not liable to be ordered by the 
court to turn the policy over to the benefit of his 
creditors. Both for his wife's sake and his own he 
should make her an irrevocable beneficiary subject to 
her death before his, in which case he should name 
their children as her irrevocable successors. As life 
insurance for the benefit of the members of one's 
family is a gift, the giver should safeguard his gift the 
same way as any other gift so that no business mis- 
fortune may imperil it. 

The premium is the amount which the policyholder 
agrees to pay. 

The application blank is the written request for a 
policy which the policyholder signs. 

The medical examination blank is a series of ques- 
tions and answers which the company's physician puts 
to the prospective policyholder and which the policy- 
holder warrants to be true. Great care should be ex- 
ercised in this respect as in case of contest or litigation 
this medical blank may be important evidence in 
behalf of the company. The policyholder should be 
sure that neither the blank which he signs nor his poli- 
cy contains a waiver on his part of the protection with 
which the law surrounds the reputation and interest of 
the dead in forbidding any physician to testify as to 
anything learned through his professional relation 



EXPLAINING TECHNICALITIES, ETC. 133 

with his patient. No man should sign a waiver to 
enable a life insurance company after his death to call 
his physician to testify. If the company insists on 
this the policyholder should refuse to take out a policy 
in that company. 

A severe medical examination is in a policyhold- 
er's interest if he can pass it. He should take pains 
to answer only those questions which he can truth- 
fully and accurately answer and what he does not 
know he should not guess at, but instead see that 
there is inserted the answer "I do not know." Leave 
no spaces blank. 

These medical blanks contain a series of questions 
as to the policyholder's health and as to the health of 
his ancestors and other relatives. These answers he 
warrants to be true and he should take pains to war- 
rant nothing that he does not know to be true. Some 
agents in their desire to secure an easy acceptance ad- 
vise policyholders to soften the answers and even to 
make mis-statements. They point out that the pol- 
icy is non-forfeitable and incontestible, "and that un- 
less the policyholder dies in the first year or two these 
answers are of no particular importance. " This is 
simply deception, as a false warranty vitiates the con- 
tract from its initiation. Deliberately false state- 
ment on a medical examination makes the contract 
void from its beginning and no matter how often "in- 



134 HOW TO BUY LIFE INSURANCE 

contestible" is printed in big letters on the policy the 
company can refuse to pay the same on the ground 
that there never was a contract to be incontestible, 
because the falsehood of the policyholder prevented 
the equal meeting of the minds which is essential to 
the making of a contract. 

A duplicate application and medical blank should 
always be attached to the policy, their accuracy being 
certified by the company. This is what a man mak- 
ing any other contract would insist upon that he 
should have a complete copy of the contract, and 
since the medical examination forms part of the life 
insurance contract he should take the same precau- 
tion about that. 

The reserve is the excess charge in the early years of 
a policy set aside or reserved to meet the excess cost of 
the later years of the policy. This requirement is nec- 
essary in all level premium policies. In investment 
policies the whole system is different and complicated 
by the life protection reserve partly offsetting the en- 
dowment or investment reserve. This offset is one of 
the numerous ways in which the policyholder is whip- 
sawed by a combination investment and life policy. 

The annual surplus is the excess of the mortality 
charge over the actual mortality loss, the excess of the 
interest received on the reserve over the reserve re- 
quirements, and the excess of the expense loading over 



EXPLAINING TECHNICALITIES, ETC. 135 

the actual cost of management. In many companies 
the actual cost of management more or less exceeds 
the expense loading and the difference is made up by 
taking part of the mortality and reserve surplus, there- 
by declaring a net surplus less than that to which the 
policyholder is entitled. 

The reserve requirement is that the securities in 
which the reserves are invested shall pay a certain 
specified rate of interest. This rate is usually 3 
or 3| per cent. The actual rate of interest secured 
is usually over 4 per cent. The difference should be 
annually credited to the policyholder instead of being 
diverted to excessive expenses of management. 

Dividends is a term used to describe that part of 
the excess premium charges which is returned to the 
policyholder. In practice this return is whatever the 
officers of the company choose to make it. Some 
companies return as high as 85 and 90 per cent, of 
their net excess charge. Other companies return 
hardly J. The marked difference appears in the sta- 
tistical tables. Hardly any company returns the 
real surplus to which the policyholder is entitled; that 
is, all the mortality saving and all the excess income on 
the reserves. 

Dividends are two kinds, annual and deferred. An 
annual dividend policy calls for the credit every year 
of whatever portion of this surplus the officials of 



136 HOW TO BUY LIFE INSURANCE 

the company see fit to distribute. Deferred divi- 
dend policies postpone the declaration of the divisible 
surplus and its distribution to some distant period, 
10, 15, 20 or 25 years. If in the meantime the 
policyholder dies he loses all claim to part in this dis- 
tribution. 

A non-participating policy, in consideration of the 
lower premium rate, releases the company from any 
obligation whatsoever to return any part of the sur- 
plus. 

Term insurance is as its name implies, insurance for 
a fixed period. 

Renewable term insurance is insurance for a fixed 
period with an option to the policyholder to renew 
the policy for another period without another medical 
examination, the renewal rate being higher than the 
initial rate. 

A single payment policy is where the insured pays 
in advance the total of his premiums. This one pay- 
ment is so high that it is better if a policyholder has 
the money to put it in a trust company under an agree- 
ment with the trust company that it will apply the in- 
terest to paying his premiums annually. Thus in case 
of death his heirs would receive both the amount of 
the single payment and the face of the policy instead 
of the company's having the single payment and the 
beneficiaries receiving only the face of the policy. 



EXPLAINING TECHNICALITIES, ETC. 137 

10, 15, 20 and 30 payment policies are where the 
policyholder pays for his insurance in a specified num- 
ber of annual payments. These are only a modifi- 
cation of the single premium payment and the same 
objections apply to them. The policyholder can do 
better by buying the same amount of insurance pro- 
tection in the cheaper forms of term insurance or a 
level premium policy and in investing the difference 
between their cost and the higher premium. 

An endowment policy without life insurance pro- 
tection is the agreement to pay the face of the policy 
at its maturity should the policyholder be living. 
If the policyholder dies during the term of the policy 
the company pays nothing. 

A combination life and endowment policy is where 
in consideration of the policyholder paying both a life 
insurance premium and an endowment premium, the 
company agrees to pay whether he lives or dies. As 
it is obviously impossible for him to be both alive and 
dead at the end of 20 years, it is a certainty that the 
company will not be called upon to pay both the en- 
dowment and the life insurance. This combination 
policy is the costliest form of life insurance protection. 

An annuity is the agreement on the part of the com- 
pany in consideration of payment to it in advance, to 
pay a specified amount to the policyholder every year 
he lives. When he dies the payments stop. Pure 



138 HOW TO BUY LIFE INSURANCE 

annuities are not common but an annuity in combina- 
tion with a life insurance policy is frequently sold, the 
annuity payments going to the beneficiary. There 
are many forms of these policies all containing the 
essential feature that the principal sum of the insur- 
ance is never paid. In return for the policyholder 
making annual premium payments during his life, his 
wife will receive approximately the same average 
amount in annual annuity payments to her after his 
death. Taking these policies as a class, the insurance 
company has all its money in before it has to pay any 
out. The compound interest on the earlier payments 
make this kind of trai^saction profitable to the insur- 
ance companies. 

A tontine policy is where all the policyholders who 
drop out lose any interest in the fund, and such part of 
their excess payments as the insurance officials think 
proper is divided among the survivors. 

A semi-tontine is where the insured who drop out 
get back part of what is due them instead of all, and 
the remainder which is withheld from them is spent by 
the management, or such proportion of it as the man- 
agement thinks best is distributed among the surviv- 
ors. 

Installment policies, gold bonds, return premiums 
and the like are only variations of the combination prin- 
ciple. They are worked out in many different attract- 



EXPLAINING TECHNICALITIES,ETO. 139 

ive and deceptive ways, but the principle of them is 
the same. The company's profit is in the compound 
interest on earlier payments besides the expense load- 
ing. The next chapter tells about this more in de- 
tail. 

The phrase "maturity" as applied to a combination 
policy means that the payment has become due 
through the investment period ending during the life 
of the policyholder. 

Termination by death means that the policyholder 
died while his policy was in force. 

"Expiration" means that the policy has run out, 
its term having come to an end. This is applicable 
to term insurance. 

A policy "lapses" when the policyholder fails to pay 
a premium when due. To surrender a policy is for the 
policyholder while the policy is still in force to return 
it to the company and receive the sum which the com- 
pany pays him for relief from further liability. 

The surrender value is what the company is willing 
to pay the policyholder to cancel his policy. 

The loan value is what the company is willing to 
loan the policyholder on his policy. Both the loan 
and the surrender value are always less than what the 
policyholder has paid in. They are also less than 
what his insurance protection is worth to him. 

Some of the biggest life insurance companies have 



140 HOW TO BUY LIFE INSURANCE 

made a feature of their surrender values. No policy- 
holder should have anything to do with them. They 
are merely agreements to pay him back part of what 
he is entitled to, and whether in the shape of a loan 
or a surrender the effect is the same in impairing or 
cancelling his life insurance protection. 

Every prospective policyholder should insist upon 
having these options stricken out of his policies en- 
tirely so that he can not lapse it entirely, forfeit it, sur- 
render it, or borrow money on it. To the extent to 
which he has paid for life insurance protection which 
he has not got he should receive paid up life in- 
surance which, though costly, is much better than 
none. Should he become unable to make his premi- 
um payments he should take only the form of policy 
which automatically, becomes paid up to an amount 
in proportion to his excess payments. If he has tak- 
en out a level premium policy to protect his wife and 
children, he wants to be sure that that protection can 
not be taken away from them. By making a policy 
irrevocable and by providing that on his failure or 
inability to meet further premium payments, the 
amount overcharged him shall be commuted into paid 
up insurance, he greatly simplifies his policy and he 
can easily compare the policy rate advantages of dif- 
ferent companies. 

It should be added that short term or renewable 



GOLD BONDS AND GOLD BRICKS 141 

term policies have no loan or surrender value and are 
entitled to no paid up insurance, as they contain no 
advance charge to meet future higher rates. 



CHAPTER XI 

Gold Bonds and Gold Bricks 

SOME of the gold bricks which are sold in the guise 
of life insurance policies require a chapter by them- 
selves. All forms of investment policies are at 
the expense of the policyholder as there is no possible 
way of profitably combining investment with life in- 
surance in one policy. No such policy returns to the 
average policyholder as much money as he paid in, 
with interest. The Federal and State constitutions 
guarantee the freedom of contract and every man has 
the right to put his savings in an insurance company 
if he desires. All the author seeks is to tell what these 
investment policies are and to explain their workings 
so that a man who buys one of them will know what 
he is doing, and will have no right to find fault with the 
result when his policy matures. 

Some men justify their investments in the form of 
combination policies by the statement that otherwise 
they would not save and that the fear of forfeiture 
and loss compels them to make regular payments when 
otherwise they might squander the money. If a man 
needs a penal clause to compel him to save, he should 
at least go to the trouble of figuring out the form of 



GOLD BONDS AND GOLD BRICKS 143 

penal saving which will give him the best return. A 
man who buys a house on an installment plan has at 
least as strong a penal incentive to continue his regu- 
lar payments as if he bought an accumulation period 
investment policy. The fear of having a mortgage 
foreclosed should at least equal the desire to escape 
the forfeiture of his policy. The big difference is that 
the man who is paying for his own home is saving 
rent as his payments take the place of rent, while the 
man who takes an accumulation period investment 
policy has nothing to show for the interest on his in- 
vestment if he does not both continue his payments 
regularly and live out the full accumulation period. 
The percentage of men who are unable to continue 
these investment policies is large. Every man should 
seriously consider the danger of being one of those 
whose accumulations are forfeited before he assumes 
a 20 year contract. 

This comparison has to be illustrated technically. 
An endowment policy at the age of 30 to mature in 
20 years costs $51.50 in annual payments A divi- 
dend policy at the same age calls for an annual pre- 
mium of $24.38. A straight life level premium policy 
at the same age costs $18.74. Twenty year term in- 
surance costs $15 a year. These rates vary some- 
what in the different companies, but the figures given 
above are the prices at which these well known poli- 



144 HOW TO BUY LIFE INSURANCE 

cies could be bought from standard companies. 

If the policyholder dies at any time within 20 
years his beneficiary will receive exactly the same 
sum, $1,000, no matter what form of policy he holds, 
nor how much premium he has paid, or whether he dies 
the next day or in the 19th year. If he lives 20 years 
the investment features of his policy will mature pro- 
viding he has regularly paid all the premiums. For 
an endowment policy he has paid in premiums $1,030 
and he is sure to get $1,000 back. For his deferred 
dividend policy he has paid $487.60 and he is sure to 
get whatever dividends the president and actuary are 
willing to give him. For his straight life policy he 
has paid $374.80 and he is entitled to nothing except 
its surrender value, should he desire to cease paying 
for his insurance protection then. For his 20 
year term policy he has paid $300 and his policy term- 
inates. 

This is the scale of prices presented by life insur- 
ance agents to demonstrate to the prospective policy- 
holder how much better off he is with an investment 
policy. He has paid for his endowment policy 
$1,030, he gets back $1,000, and all that his life insur- 
ance protection for 20 years has cost him is $30, or 
$1.50 per annum. On the other hand his 20 year 
term policy has cost him $15 per annum or 10 times 
as much. This is the argument the agent uses to sell 



GOLD BONDS AND GOLD BRICKS 145 

the high priced policies. In order to accentuate the 
argument, still higher priced policies than the 20 year 
endowment are, have been devised. 

One of the most recent forms of these is the 5 per 
cent, gold bond. By paying $66.70 instead of the or- 
dinary $51.50, the policy holder gets a $1,000 5 per 
cent gold bond on which the insurance company agrees 
to pay 5 per cent, interest for 20 years. By paying 
$86 he will get a double endowment at the end 
of 20 years, or $2,000, when all he has paid in in pre- 
miums is $1,730. With these gold brick policies 
the representation is made to the policyholder that 
not only does he get his life insurance protection with- 
out paying anything for it, but he gets back more 
money than he paid in. 

The life insurance agents can hardly be blamed for 
selling these policies to intelligent American business 
men who can believe for an instant that an insurance 
company, a bank or any other business can continue 
for five years, let alone twenty, paying out more than 
it gets in. Yet so successful has been the sale of these 
policies that they have developed from the endowment 
and double endowment and five per cent, gold bond on 
to the continuous bond by which, instead of waiting 
for death to receive the gold bonds, the policyholder 
receives a bond every year and in case he dies before 
the whole 20 bonds have been given to him, his bene- 



146 HOW TO BUY LIFE INSURANCE 

ficiary at once receives the remaining bonds. 

All these policies are the most profitable for an in- 
surance company to issue because they fail to give the 
policyholder the benefit of the progressive compound 
interest. Instead of being the cheapest forms of life 
insurance protection they are the most expensive. 
The investments of insurance companies pay them 
on an average considerably over 4 per cent. Insur- 
ance companies are not limited rigidly by law to the 
conservative forms of investment to which savings 
banks are restricted. They also charge 5 per cent, to 
all policyholders on policy loans, and although the pri- 
vate speculations of officials of some of the largest com- 
panies have lessened the net income return, still the 
annual reports return a good margin over 4 per cent. 

Almost all business men are familiar with the ordi- 
nary compound interest tables by which $1 earning 4 
per cent, interest becomes in 20 years $2.19. That is, 
$1 deposited at compound interest more than doubles 
in 20 years. So a single premium payment on any 
form whatsoever of life insurance policy more than 
doubles at all ages up to over 45, taking the average 
longevity at that age. This is where the big profit 
in single premium policies accrues to the company. 
That test should be applied to all policies, but it be- 
comes more complicated though no less mathematic- 
ally exact, when the premiums are paid annually or 



GOLD BONDS AND GOLD BRICKS 147 

from time to time instead of in one lump sum. 

Every school boy, let alone every business man, 
knows what simple compound interest is, but few are 
aware of the great difference between a dollar at sim- 
ple compound interest, and a dollar paid annually at 
progressive compound interest. While $1 paid at the 
beginning of 20 years has grown to only $2.19, $1 paid 
annually for 20 years has grown to $30.97. Instead 
of $1 compounding there are $20 each compounding 
at a progressive rate. 

The man who pays in $51.50 every year for 20 years 
instead of paying $1,030, has in reality paid $1,594. 
For the five per cent, gold bond instead of paying only 
the $300 total of the $15 additional annual payments, 
he has really paid more than \ as much more and for 
the double endowment he has paid in excess of the full 
face value and assumed himself the risk of his dying 
during the 20 year period. The greater proportion 
that his investment is to his life insurance protection 
the greater is this amount of compound progressive 
interest which he loses. On any 20 year investment 
policy this compound interest amounts to more than 
one-half the payments. 

Arranging the real cost of these respective policies 
a combination endowment costs $1,594 instead of 
$1,030; a deferred dividend $752 instead of $487; a 
straight life $580 instead of $374 and 20 year term 



148 HOW TO BUY LIFE INSURANCE 

$464 instead of $300. This table proves that the 
straight life and the term insurance are both cheaper 
than the investment insurance should the policyhol- 
der be alive at the end of the 20 years. Should the 
term insurance policyholder desire to continue his 
life insurance protection after 65 he would have to pay 
a higher rate for the next period which more than 
equalizes in most companies the difference in the first 
20 year cost of straight life and term insurance. 
Should he hold either an annual or deferred dividend 
straight life policy the net cost of it is the difference 
between $752 and the dividends which he may re- 
ceive or may have received. 

It is here that the great advantage of the annual 
dividend over the deferred dividend is apparent. In 
an annual dividend policy, the policyholder gets the 
benefit of all the compound interest on his dividends. 
In a deferred dividend policy the company has this. 
Even if both are of equal amount in the end the man 
who dies before the deferred dividend period is com- 
pleted loses all his dividends including the compound 
interest, while the man who dies with an annual divi- 
dend policy has the benefit of the dividends which he 
already received. 

Where the policyholder dies before the investment 
period expires, the disadvantage of an investment pol- 
icy is still more marked. Should the holder of an en- 



GOLD BONDS AND GOLD BRICKS 149 

dowment policy die at the end of 10 years he has paid 
in $643. The deferred dividend policyholder has paid 
in $304, the straight life $234 and the 20 year term 
$187 (progressive compound interest being included 
in all cases). On all these policies the company 
pays exactly the same sum to the beneficiary, $1,000 
in each case. The investment policyholder has paid 
three times as much and in return gets no more. 
Should he have a double endowment he would be that 
much the more worse off. The higher his premiums 
the less his life insurance protection. The endow- 
ment man who has paid in $643 has only life insur- 
ance protection to the amount of $357. After the 
15th year he has no life insurance protection at all, the 
amount of his premiums and interest more than equal- 
ing his life insurance. 

The gold bond delusion is still more of a reliance 
upon the credulity of the policyholder. The man 
who buys a 20 year endowment 5 per cent. 20 year 
gold bond is paying for $1,300 of life insurance, not 
$1,000. The company collects from him in advance 
the difference between 3 and 5 per cent, for 20 years. 
It is something like a man discounting his own note 
and giving the discount to some one else who guar- 
antees that if he pays the face of the note he will re- 
ceive the discounted value at the note's maturity. 
The public have been deluded by this because the dis~ 



150 HOW TO BUY LIFE INSURANCE 

count instead of being figured in one sum and de- 
ducted as the discount clerk in a bank does it, is strung 
over a period of 20 years and deducted with progress- 
ive compound interest. Any man can take the sim- 
ple compound interest and the progressive compound 
interest tables which are printed in the appendix and 
apply them to the premium rates and the forms of 
policies in any company. The arithmetical process 
is easy and its application will destroy this delusion. 

These gold bonds, installment bonds and other in- 
vestment policies are computed not on the current 
rate of interest from the company's investments 4 to 
4§ per cent, but on 3 and 3 J per cent, whichever may 
be the reserve basis. The difference between these 
two rates of interest is a gain to the company which in 
one large company amounted in 1904, to $4,240,000, 
in another to $4,149,000, in the third to $4,224,000, 
and in the fourth to $2,863,000. The aggregate of 
this excess interest is tens of millions, of which the 
holders of gold bonds receive not a penny. 

Let the men who carefully figure the interest they 
pay on the mortgages on their houses, on the notes they 
have in the bank, or on the value of money to them, 
take the progressive compound interest table and try 
as best they can to figure out how they gain any- 
thing by paying an excess premium on which they do 
not receive the excess interest. A man who after go- 



THE AGENT 151 

ing through this arithmetical process which any school 
boy, let alone an ordinary bookkeeper can do, then 
buys one of these policies, should have his name put on 
a list of those upon whom the Western Miner calls with 
a gold brick, the corner of which will stand an acid 
test, but the interior is good only for copper wire. 



CHAPTER XII 
The Agent 

GREATER in numbers than the men in the navy 
of the United States and almost equal to the 
total force of the army are the life insurance 
agents. They number 69,000 besides which there are 
many men who occasionally act as agents but who do 
not make that their principal occupation. The average 
income of these agents is higher than the average fees 
of the physicians or the lawyers of the United States. 
Several of the larger companies which have analyzed 
their commission and salary payments to the agents es- 
timate the agent's average income at $100 a month. 
This does not include the industrial companies' solic- 
itors, but only the men connected with the Old Line 
companies. The companies reporting to the Massa- 
chusetts Insurance Department for 1904 gave their 
payments for agents alone as more than $50,000,000, 
in which were not included the cost of medical exam- 
inations, the home office managing and bookkeeping 
expenses, the office expenses and payments for print- 
ing, advertising and postage. These companies issued 
that year about 700,000 new policies, making the 
agent's receipts over $70 for each new policy. 



THE AGENT 153 

How much the real total of the agency cost is must 
be left to be estimated. It is considerably more than the 
actual commissions because the agency managers on 
salary, the inspectors, the special literature for which 
the company pays, office allowances and like items 
add substantially to the gross amount of the com- 
missions. When it is considered that these same com- 
panies paid in the same year only a hundred million 
dollars of death losses, the agency system in its true 
proportions stands as representing an amount three 
quarters as costly as the death losses. It represents 
a cost of doing business greater than that of any other 
well recognized business and many times that of any 
other purely financial organization which has no raw 
material to buy, no machinery to keep in repair, and 
no pay roll connected with its product. 

The cost of getting new business exceeds in every 
company except the Presbyterian Ministers Fund, 
the net amount received from new business. Al- 
though new policies have no surrender value or loan 
value and only a nominal mortality, in many cases 
the whole of the first two or three years' premium 
goes to meet the soliciting expenses. The Presbyter- 
ian Ministers Fund has only two agents. It is also 
the only company whose expenses of management 
are less than 10 per cent, of its premium income and 
it is the only company whose first year's expenses do 



154 HOW TO BUY LIFE INSUBANCE 

not exceed the receipts. The Presbyterian Minis- 
ters Fund is unique because it insures only ministers. 
But in this respect it does not differ in principle from 
many of the fraternal orders which sell life insurance 
protection only to their members. In either case the 
great reduction in the cost of the life insurance pro- 
tection comes directly from the saving of the great 
cost of the present system of insurance through 
soliciting agents. 

That the agent earns his money every man who has 
been the object of his solicitations can testify. It 
requires as much ability to be a life insurance agent 
as satisfactorily to practice any other profession. 
The successful agent must have tact, persistence, skill 
and an intuitive knowledge of men. He must have 
a certain detective instinct as to a man's weaknesses 
and habits. He must convince the prospective poli- 
cyholder not only that he should insure but that the 
agent's company is the best one to insure in and that 
the higher priced policies^ are the best ones to buy. 

Corresponding with the difficulties of his task, 
the rewards in money to a successful life insurance 
agent are greater than those of any other salesman. 
Scores of agents have made over $50,000 a year. 
Some have made over a hundred thousand dollars a 
year and a few have received as high as a quarter 
million dollars in a year of unusual success at selling a 



THE AGENT 155 

great volume of policies. 

It should be noted that the agent is paid on a com- 
mission basis and that the commission is proportion- 
ately higher on the more expensive forms of policy. 
While a gold bond policy pays the agent in total com- 
mission about two years 7 aggregate premiums, a term 
policy or a straight life pays less than one year's pre- 
miums in commission. The reason is that the more 
expensive policies contain so big an excess charge that 
the agent can be paid twice as much to sell them and 
still the officials of the company will have a larger 
asset accumulation which, if they are so inclined they 
can use in part for their private profit. 

The agent is not the cause, but the result of the mod- 
ern system by which the largest life insurance com- 
panies attained their colossal size by combining the 
business of a savings bank with the business of selling 
life insurance protection. The smaller and more con- 
servative companies, instead of wholly repudiating 
this system and conducting an educational campaign 
to enlighten the public as to its expensive fallacies, 
have been too prone, with some exceptions, to imi- 
tate rather than to expose. 

If this whole modern agency system were to be abol- 
ished it would be to the financial advantage of all the 
policyholders who are entitled to a return of their ex- 
cess premium charges. The oldest life insurance com- 



156 HOW TO BUY LIFE INSURANCE 

is a failure on the part of the officials to do their best 
duty to the policyholders. 

The undue attention paid by the state commission- 
ers to the reserve has led to the companies advertis- 
ing the basis of their reserve as an inducement to 
policyholders. If the reserve is put on a 3 per cent, 
instead of a 3 J per cent, basis it requires a larger ini- 
tial premium charge to meet it and if this is unac- 
companied with a return of a difference between the 
reserve 3 per cent, and an investment return of over 4 
per cent., the policyholders are the losers by the higher 
reserve. If on the other hand as some companies do, 
this increased excess is to a great extent returned, the 
policyholder to that extent escapes injury. It would 
not be safe to continue new reserves on the 4J basis 
which was common when well secured investments 
would bring b\ or 6 per cent, interest return, but in 
view of the great excess in investment interest over 
the reserve requirements, the state commissioners 
should insist on the return of this excess equally with 
their insistent enforcement of the preservation of a 
safe reserve. 

The requirements of some state reports are of much 
greater public value than others. The state com- 
missioners have annual meetings at which efforts have 
been made to require a uniform report in all the states. 
In recent years this annual convention of state com- 



THE AGENT k 157 

parative cost of the office expenses and medical exam- 
ination which was less than 10 per cent, a figure 
approximated by no American company except the 
Presbyterian Ministers' Fund. 

Of all the American companies doing a general busi- 
ness, only one, the Connecticut Mutual, has paid its 
policyholders, including everything, both death losses 
and dividends, an amount in excess of the premiums 
which the policyholders have paid in. Other com- 
panies have to a greater or less extent given the policy- 
holders the benefit of the progressive compound inter- 
est, but none of them has done so to the extent of the 
old Equitable of London, and none of them can so 
long as they maintain an expensive agency system 
necessarily at the policyholder's expense. 

The companies which have made the best records 
are indicated by the appendix tables. Some of the 
younger companies under their present management 
may in time make equally as good returns to their poli- 
cyholders as some older companies have done. An 
older company has the advantage of the smaller ratio 
of its new business to its old business because the 
larger the ratio of new business under the present 
agency system the worse off are the policyholders. 
The record of the Connecticut Mutual is so favorable 
from the fact that 30 years ago it was next to 
the largest insurance company in the United States 



158 HOW TO BUY LIFE INSURANCE 

and it has increased very little, while the companies 
which have increased more have by the very fact of 
the cost of the agents' commissions on the new busi- 
ness, been unable to make equally profitable returns 
to their policyholders. Two or three of these com- 
panies, however, promise to surpass the record of the 
Connecticut Mutual as the ratio of their old to their 
new business increases. 

The system of insuring lives which the old Equi- 
table of London has always practiced is to maintain 
an office with a medical examiner in attendance where 
any man desiring to have his life insured can go dur- 
ing office hours and if he passes a satisfactory medical 
examination take out a policy. With the exception 
of the medical examination the system is the same 
as that of a savings bank or a trust company where a 
depositor can at any time open an account on being 
properly vouched for, where his account will be 
continued as long as he keeps up the minimum balance 
and where the interest will be credited to him at stated 
periods without any further act on his part than to 
call with his bank book and have the interest en- 
tries made. 

Some of the present day life insurance companies 
have been trying to minimize this agency expense, in 
every case to the resulting benefit of the old policy- 
holders. Thus the North Western Mutual's new busi- 



THE AGENT 159 

ness for 1904 cost only 131 per cent of its mortality 
gain and expense loading. The Massachusetts Mu- 
tuaPs cost 141 per cent, the Pennsylvania MutuaPs 
162, the State MutuaPs 171, the Berkshire's 180 and 
the Mutual Benefit's 185. In contrast to these the 
Equitable's first year business cost 339 per cent, the 
Mutual of New York 331, Germania 350, and Wash- 
ington 337. All the excess of this over 100 per cent, 
had to be paid out of the funds in hand which rep- 
resented the assets accumulated from the excess 
charge upon the old policyholders. Where this ex- 
cess is slight as in the first group of companies cited 
above, the second year's expense loading and mor- 
tality gain on the new business pays for it, but where 
the excess is as high as in the second group of com- 
panies cited, there is a steady drain upon the old pol- 
icyholders. 

Until this agency system is either radically remod- 
eled or reduced to moderate bounds, as certain con- 
servative companies are now engaged in doing, it will 
be impossible for any Old Line life insurance company 
to make its dividend policies the cheapest form of life 
insurance protection. 

This is said with no purpose to criticise the agent, 
but in the plain statement of a mathematical fact that 
life insurance protection cannot be sold on the basis 
of its proper reasonable cost until the expense of new 



160 HOW TO BUY LIFE INSURANCE 

business is minimized. There is no necessity for 
soliciting agents; branch offices with competent med- 
ical examiners would better meet the requirements of 
the public who desire to buy life insurance protection. 
Without the solicitors whose livelihood depends on 
their income from their commissions, and whose income 
depends as to its size on their sale of the most costly 
policies, there would be no power at work to delude 
the public into buying any other form of life insurance 
protection than sound personal business policy would 
dictate. 

The solicitor has been justified on the ground that 
the public needed education as to the benefits of life 
insurance protection. The fact that more men buy 
life insurance protection in the fraternal orders than 
in the shape of investment policies in the Old Line 
companies should be in itself proof that what the 
public "needed" was not instruction as to the bene- 
fits of pure life insurance, and that the costly invest- 
ment policies could not be sold unless the personal 
persuasions of an agent were set to work to befog 
the ordinary business intelligence of the purchaser. 

Without the soliciting agent it is doubtful whether 
any great part of the life insurance policies sold would 
contain the expensive investment features. The 
elimination of these features would reduce both the 
income and assets of the companies which now sell 



THE AGENT 161 

them, but the amount of life insurance protection 
would not be reduced, the beneficient effects of life 
insurance would not be diminished. If the Old Line 
companies with their superior experience, their greater 
actuarial knowledge, and their trained expert manage- 
ment could be relieved from all entanglements and 
devote themselves to the simple business of selling 
life insurance protection, they could readily combine 
solvency and stability with the cheap life insurance 
protection which the fraternal societies furnish. 

The 25 largest Old Line companies had in force 
Jan. 1, 1905, eight and one-half billions of insurance. 
The 25 largest fraternal societies had in force five and 
one-quarter billions of insurance, or two-thirds as 
much. The income of the Old Line companies was 
was $450,000,000, and of the fraternal societies 
$60,000,000— a little less than one-seventh. The pay- 
ments to policyholders of the Old Line companies 
were $135,000,000, or less than one-third of their in- 
come, and of the fraternal societies $50,000,000, or 
five-sixths of their income. The cost of management 
of the Old Line companies was $76,000,000, and of the 
fraternal societies $4,500,000. The per cent, of the 
cost of management to income was over twice in the 
Old Line companies as in the fraternal societies, while 
the cost of management to the payments to policy- 
holders was only 9 per cent, in the fraternal societies 



162 HOW TO BUY LIFE INSURANCE 

to 57 per cent, in the Old Line companies. 

The discrepancy here is too great to be explained 
in any other way than that the Old Line system of 
insurance is on the average needlessly costly. Its 
high cost is not intrinsic but is due to the combination 
policy scheme which requires an enormously expen- 
sive agency system. If these expenses were deducted 
from the total cost of the management of the Old 
Line companies, they would compare favorably with 
the fraternal societies considering that the life insur- 
ance management of the fraternal societies is not 
adequately paid, and that a more professional man- 
agement would result in increased stability of the 
fraternal assessment plan of insurance. Fraternal 
insurance has the advantage of dispensing with the 
great cost of soliciting agents. It has the disadvant- 
age of being combined with other things and of not 
providing sufficiently for the assured continuity of the 
life insurance protection. A mean between these 
two would combine both the stability of the Old Line 
plan of insurance and the lower cost of fraternal 
insurance. Under such a plan the present system of 
life insurance solicitors would be done away with and 
a system of branch offices w r ould take its place. 

But this will never be done without a fuller under- 
standing of both the necessity for life insurance and 
its mathematics. There is nothing about these which 



OFFICIAL SUPEBVISION AND THE LAW 163 

any one cannot learn with reasonable application, 
ess application indeed than most ordinary business 
transactions require. The buying of a home requires 
more investigation and better judgment than the 
selection of a life insurance policy. If added to the 
home were a scheme of real estate speculation, there 
would be a like similarity to the combination of specu- 
lative investment features with life insurance pro- 
tection. The average man had better leave specula- 
tion in any form whether in Wall Street, real estate, 
or life insurance to those men who make a specialty 
of it and whose profits come from their superior skill 
and knowledge over the average man who is induced 
to participate to his loss. 



CHAPTER XIII 
Official Supervision and The Law 

EVERY state has some form of insurance supervis- 
ion and some kind of insurance law. The United 
States have neither, although the general powers 
of the new corporation department might be included to 
authorize its examination into insurance corporations. 
The United States Supreme Court has decided in sev- 
eral cases, Paul against the State of Virginia being the 
best known, that life insurance is not interstate com- 
merce and that Congress has no power to regulate it. 
This does not exclude the power of supervision or 
examination and several attempts have been made, 
notably by United States Senator John F. Dryden of 
New Jersey, President of the Prudential of Newark, 
to have the United States Government take upon 
itself the supervision of life insurance companies. 

Under the present system of State Supervision 
every state has the power to pass its own insurance 
code and to provide for its administration. The 
administration usually takes the form of a separate 
department of insurance whose head is in most cases 
appointed by the Governor and whose duty it is to see 
that the insurance law of his state is enforced. In 



OFFICIAL SUPERVISION AND THE LAW 165 

some states the insurance commissioner or insurance 
superintendent, as he is variously called, is an elected 
official chosen by the Legislature or by popular vote. 
In more states the life insurance matters are a part 
of the duty of some state official, the comptroller, the 
auditor or the treasurer, and become one of the bu- 
reaus in his office. 

The insurance laws of the different states vary much 
less than the manner of their enforcement. Every 
insurance law allows a wide discretion to the insurance 
commissioner and the efficiency of state supervision 
depends more upon the commissioner than upon the 
law. Among the common requirements of all state 
insurance departments is an annual report by all 
life insurance companies which do business in that 
state. This report is primarily to enable the com- 
missioner or superintendent to determine the solvency 
of the companies. In many states this is all the com- 
missioner does. While his powers of scrutiny under 
the law are ample, and he could use his authority 
to require the fullest information and publicity for 
the benefit of the policyholders, most commissioners 
have contented themselves with such an examination 
as would assure them that the reserve required by law 
had not been impaired. As the reserve requirement 
is only one of the several essentials of sound, pure, hon- 
est life insurance, to be content with its observation 



L66 HOW TO BUY LIFE INSURANCE 

pany now doing business, the Equitable of London, 
which began in 17(>2, has no agents and never had an 
agent. In its volume of business it is not to be com- 
pared with the three great life insurance companies. 
Its total policies do not equal the new annual business 
of any of these great concerns, but from the policy- 
holders point of view, the comparison is directly the 
other way. 

In the last 100 years the old Equitable of London 
has received in premiums $130,000,000, or less than 
one million and a half dollars a year. The average 
size of its policies is about $1,000. It has paid to its 
policyholders $228,000,000 or $176 to every $100 
which it has received in premiums besides which it 
has on hand $23,000,000 more to pay its present 
policyholders as their policies mature. Instead of 
using its premiums and investment income to hire 
agents to induce more men to insure, it has relied upon 
the superior intelligence of those policyholders who 
bought life insurance protection without costly solici- 
tation and it gives them the full benefit of their super- 
ior intelligence. Including its present assets the Old 
Equitable gives its policyholders $190 for every $100 
they have paid in. This is made possible by the pro- 
gressive compound interest explained in a preceding 
chapter which doubles the amount of the premium re- 
ceipts and has deducted from it only the small com- 



0FFIC1 107 

mist: n the interest of insurance 

man* I their expenses of rnan- 

t than in the welfare of the policyholders whose 
resfa the utmost publicity could do nothing 
but hek\ 

In the earlier le national convention rf £ 

Insurance Commiarioiu y life 

'; comp rnake a detailed report of all 

neaBL This was called the gain and lose 

hibit. I :ng only the total insurance, 

premium and investment re :he legal 

the policyholders, the rer 
under the gain and loss exhibit required analysa 8 an 
cement of both th and th- 

i.itures. The mortality : and the mortality 

cost, the ve requirements and the investment in- 

come, t:. ing and the real cost of roan- 

mentj the surrender and lapse values and the 
surr^; ind lapse paymi 1 to 

be stated separately so that the public could know 
their excess charges for mortality and re- 
aid to :hem in divide: whether 
they were diverted V. mve cost of mar. 
ment, or to an irresponsible surplus with which the 
officials could speculate to their personal profit. 

irement trf a gain and loss exhibit was in 
existence only a short ::me when at J succeeding 



168 HOW TO BUY LIFE INSURANCE 

vention the officials of certain insurance companies 
wielded enough influence to bring about its repeal 
and to establish instead an official statement which 
conveyed little intelligible information beyond the 
statement of assets, insurance in force and reserve. 
The insurance departments of Minnesota and Wiscon- 
sin, however, refused to discontinue this valuable pub- 
lic statement. They have also been joined in require- 
ments for needed additional information by the insur- 
ance commissioners of Tennessee, Missouri and several 
other states, none of the great Eastern or Middle 
States joining through their insurance departments in 
these laudable requirements. The reports of both 
Wisconsin and Minnesota are accessible to the public, 
and from them the data of dividends, mortality cost, 
investment income and other details which appear in 
the tables in the appendix have been compiled. 
i The remedy for wasteful management is primarily 
with the state insurance departments because, wheth- 
er or not the extravagance is of an amount suffi- 
cient to warrant official regulation there is no doubt 
that the policyholders are entitled to full knowledge. 
The annual publication by the insurance depart- 
ment of every state of an intelligible insurance report 
would so enlighten the public that it would be diffi- 
cult for the most adroit and persuasive agent to sell 
policies in a company whose extravagant manage- 



OFFICIAL SUPERVISION AND THE LAW 169 

ment made the cost of life insurance protection ex- 
cessive. The state commissioners could legitimately 
and properly go much farther than they do in requir- 
ing not only a full and explicit detailed statement, 
but by insisting that each policyholder should receive 
annually a copy of it and an accounting of his individ- 
ual policy. 

In two or three states there are either legislative or 
executive attempts to prohibit deferred dividend pol- 
icies. Whether or not deferred dividends should be 
prohibited by law, there is no doubt that deferred 
accountings should be abolished and that a policy- 
holder should have the same right to an annual state- 
ment which a stockholder in a corporation or a savings 
bank depositor has. Without quickened public 
opinion there is little likelihood of the state depart- 
ments being of more value than now. So long as the 
insurance officials guide their own supervision through 
their political, financial or social relations with the 
insurance commissioner, so long the insurance depart- 
ments of the majority of the states will be managed 
as the insurance company officials want them man- 
aged which is not necessarily the same as for the best 
interests of the policyholders. 

The state departments could do much more valuable 
work than they have been doing, by regarding them- 
selves solely as the policyholder's agents. This point 



170 HOW TO BUY LIFE INSURANCE 

of view has been interfered with by the custom in most 
of the states of collecting from the insurance com- 
panies the cost of the insurance departments so that 
the state officials whose fees, salaries and expenses 
were paid by the insurance companies, came to regard 
themselves to a certain extent the employees of the 
companies and not of the people. This system should 
be changed by putting all insurance departments on 
the same basis as any other state departments and 
paying them directly from the state treasury and from 
the general tax fund. If insurance companies are to 
be taxed, that is a proposition to be considered sepa- 
rately on its own merits. It should not be confused 
with the necessity for their public inspection and the 
state insurance officials should be entirely removed 
from any feeling whatsoever of direct or indirect obli- 
gation to the companies under their supervision. 

It would be no cure for the present situation to abol- 
ish the insurance departments entirely and to sub- 
stitute one national insurance department even if the 
Supreme Court of the United States could be induced 
to reverse itself on this point. 

So long as one state insurance commissioner does his 
full duty the results of his investigations are available to 
any one who will get a copy of his report. Even during 
the recent years of the insurance corruption in the 
great companies which has just been exposed, the 



OFFICIAL SUPERVISION AND THE LAW 171 

reports of Wisconsin and Minnesota were invaluable 
indications to the student of life insurance as to what 
was going on. To supplant these state departments 
with one national department would mean that cor- 
rupt, wasteful or secretive insurance officials would 
have only one superintendent to deal with instead 
of 45. They could concentrate all their influence and 
all their pressure upon this one department. The 
testimony before the New York Legislative investi- 
gation committee that the largest New York companies 
were in the habit of contributing $50,000 apiece 
every Presidential campaign to the political funds of 
the party which elected its candidate, would make it 
difficult for the President so elected, no matter how 
high minded he personally might be, to deal with 
their affairs with the rigor which the interests of their 
policyholders required. It is next to impossible simul- 
taneously to corrupt the insurance departments of 45 
states. A few of them are bound to break loose. It 
would be most unfortunate should the reliance of the 
policyholders for governmental supervision and hon- 
est publicity be confined to only one man however 
virtuous might be his intentions or stern his morality. 
The pressure of over $2,000,000,000 of assets in the 
hands of able and possibly unscrupulous men would 
be more than one human nature should be expected 
to withstand. 



CHAPTER XIV 

Decide For Yourself 
The Rights and Duties of the Policyholder 

MORE effective than official supervision or the 
law is the working of intelligent public opinion. 
No man knowingly makes a bad bargain. No 
man consciously will pay more for anything of value 
than he can buy it for. Assuming that life insurance 
is the great philanthropic and missionary institution 
which the then President of the Mutual Life of 
New York, Richard A. McCurdy, termed it in his 
testimony it still remains that the policyholders 
would prefer to have their missionary contributions 
voluntary and not compulsory or hidden. It has 
been only through popular ignorance of the real facts 
that the perversion of life insurance has taken place. 
And it should not be overlooked that there are com- 
panies which have given their policyholders good ser- 
vice and have paid to their policyholders all that they 
could return less the necessary expenses of the costly 
agency system. Without the agency system, no 
company would have grown to any commensurate 
size unless the public had been so educated with the 



DECIDE FOR YOURSELF 173 

necessity for life insurance protection that personal 
solicitation would have become unnecessary to se- 
cure the best class of policyholders. 

If after the publicity which has been given through 
the press of the United States to life insurance evils, 
the public continues taking out insurance only when 
solicited and buying by preference those forms of pol- 
icies which cost them most and profit the agent most, 
then the public deserve to have a recurrence of the 
iniquities which have heen exposed, for the diversion 
of their funds resulted not so much from individual 
dishonesty as from the temptations to personal profit 
which the vast accumulations of irresponsible capital 
created. 

The policyholder has the right first to a full knowl- 
edge of every detail connected with his insurance 
company. The company itself should furnish it to 
him and any company which does not give the public 
the fullest details of its business is unworthy of pub- 
lic confidence because it can have no other reason for 
its secrecy than a desire to hide some facts which 
might injure it. This publicity should contain spe- 
cific information both as to the exact cost of manage- 
ment and as to the percentage w T hich that cost bears to 
the premium. The cost of soliciting business should 
also be separately stated so that the policyholder may 
know how much he is paying the agent to induce him 



174 HOW TO BUY LIFE INSURANCE 

to insure, how much he is paying for a medical exam- 
ination and what are the salaries which he pays for a 
managing official. Every item of disbursements 
should be stated separately and the office and manag- 
ing expenses should not be summarized in totals but 
given in detail both as to the salaries of the higher 
officials and as to the number and salaries of the minor 
officials and clerks. Every insurance company has 
all this information on its books and if it will not fur- 
nish it to the man whom its agent is soliciting to insure 
and the policyholder still insures in ignorance, he has 
no right to complain of excessive cost or bad treat- 
ment. 

This right to full knowledge extends both to every 
item in the premium cost and to every item of expend- 
iture. In the case of a dividend policy a knowledge 
of these items is necessary to enable the policyholder 
to determine for himself whether the company is re- 
paying him in dividends the amount to which his ini- 
tial excess premium payment entitles him. Every 
company charges more than the life insurance pro- 
tection costs. Every mutual company is bound both 
by law and its charter to return to its policyholders 
all of the difference between its receipts and its costs. 
Almost all stock companies have their dividends to 
their stock holders limited by law or by their charter, 
and agree to return any excess to their participating 



DECIDE FOR YOURSELF 175 

policyholders. To what extent this excess is returned 
and how promptly it is returned or credited is of 
great importance to the policyholder and he should 
make sure that he receives the information. 

He has a right to all this knowledge. He has the 
same right to inquire into the quality and price of life 
insurance protection offered to him for his purchase 
as he has to inquire into the quality, price and 
value of anything else which some other man is try- 
ing to sell him. The difficulty in the past has been 
that men bought life insurance policies without the 
same ordinary investigation and inquiry which they 
would make in any other business transaction. How 
many policyholders have read every word of their pol- 
icy, and understand it? How many of them have a 
copy of the medical examination, the statements of 
which they warranted? How many of them know the 
rate of mortality, the investment income, the sal- 
ary list and the expenses of management in the com- 
pany in which they are insured? They have a right 
to all this information but no man is likely to get his 
rights unless he insists upon them. 

The policyholders have duties as well as rights. In 
a mutual company the policyholders are the electorate. 
If instead of voting intelligently for trustees they 
either do not vote at all, or give proxies to the agents 
to be voted as the management chooses, the individ- 



176 HOW TO BUY LIFE INSURANCE 

ual policyholder not only fails to perform his duty to 
himself but he does a wrong to his fellow policyholders 
who are entitled to his co-operation to insure efficient 
management and a lower cost of their life insurance 
protection. It is his duty to keep vigilant watch of 
the management of his company and to perform his 
obligation to his fellow policyholders as he should per- 
form his obligation to his fellow citizens in his vote 
for public officials. 

No man in charge of any business will do as well 
without supervision as with it. Unless policyholders 
assert their rights the managing officials are too likely 
to yield to the natural tendency to regard themselves 
as the company and to manage its affairs in their own 
interest. Nepotism is not likely to flourish where the 
policyholders are vigilant. Managing expenses are 
not likely to increase where the policyholders care- 
fully and promptly protest against any extravagance. 

Every business man knows that a satisfied customer 
is the best advertisement. The difference is that in 
ordinary business transactions the customer soon 
knows whether or not he has got his money's worth. 
The man who takes out a deferred dividend or in- 
vestment policy does not know for 20 years whether 
he has got his money's worth. Therefore every man 
who takes out a policy which relieves the officials 
fror- *ui annual accounting does his best to relax the 



DEC.DE FOR YOURSELF 177 

safeguards which surround ordinary business trans- 
action, and which are necessary nowhere more than 
in life insurance. 

It is the duty of the policyholder to familiarize 
himself with the affairs of the different insurance com- 
panies, not all of them, because that w r ould be a math- 
ematical task beyond what is necessary. From the ta- 
bles in the appendix any man can pick out a few com- 
panies which from their reports show the least cost of 
management to premium receipts, the highest percent- 
age of dividends to the total of excess charges, and 
then having picked out these few companies he should 
make a thorough investigation of them, not only of 
the figures as presented in their reports but of their 
policy forms and of their treatment of their policy- 
holders. Other things being equal he should do busi- 
ness in the company in which his neighbors have clone 
business provided his neighbors' experience has been 
satisfactory. If his neighbors have not been treated 
well, it is a reasonable supposition that he will not be 
treated well. 

In fraternal societies the members should pay more 
attention to the mathematics of life insurance. It 
is not possible to sell life insurance long below cost 
and if the assessment rates are less than the American 
Experience indicates, they should be readjusted in or- 
der to insure stability as well as future solvency. 



178 HOW TO BUY LIFE INSURANCE 

While the members of a fraternal society who die 
first are gainers in paying less for their life insurance 
protection than in the long run it is worth, the 
saving to them over slightly higher rates is not 
great and the members who survive will have to 
make up the deficiency sooner or later in some form. 
The principles of pure life insurance are easily un- 
derstood, and the time necessary to master them is 
well repaid by the results. 

Fraternal insurance would have a wider scope for 
its activities were it not for the distrust of its stability 
for which many compulsory reorganizations and some 
failures are properly responsible. Naturally in the 
desire of the elective officials of fraternal bodies to 
make a good financial showing to their members the 
assessments are kept down to the lowest notch, while 
a wiser policy would dictate slightly higher payments. 

The failure of the life insurance department of an 
assessment organization is not disastrous to its mem- 
bers in good health who can pass a medical examina- 
tion, because they can at once secure future protec- 
tion in some other organization or in an Old Line com- 
pany. But the members who are old or in bad health 
or whose risk a medical examiner would reject are 
left without any life insurance protection although 
they have paid for years their share of the benefits 
which the families of the dead members receive. It 



DECIDE FOR YOURSELF 179 

is to this most worthy class of policyholders that the 
dissolution of an assessment organization brings dis- 
aster. 

There would be no field for assessment insurance if 
the Old Line companies were to conduct their man- 
aging expenses with the same economy as the man- 
agement cost of assessment insurance. On the other 
hand there would be no reason for the small policy- 
holder to insure in the Old Line companies if the fra- 
ternal societies and assessment organizations con- 
ducted their affairs on the same mathematical prin- 
ciples of stability and solvency as are enforced by the 
actuarial experience of the Old Line companies. The 
weeding out of the Old Line companies took place 30 
years ago. In their early days they tried to sell insur- 
ance at erratic cost. They failed to keep their reserves 
properly invested. They regarded their assets as prof- 
its instead of as liabilities to the policyholders who 
had contributed them. The result was that in the dis- 
astrous financial days of the early 70's about half of 
the existing Old Line life insurance companies went 
out of business, some of them into hopeless insolvency 
and all to the injury and financial loss of most of their 
policyholders. 

It is the duty of the policyholder wherever he insures 
to take an active personal interest in the business. 
Whether in a fraternal assessment or in an Old Line 



ISO HOW TO BUY LIFE INSURANCE 

company life insurance is really co-operative. From 
the financial point of view it is strictly co-operative 
because every policyholder contributes his share to 
pay every death loss including his own. Without 
these co-operative contributions any company would 
fail because there is no Other fund except the policy- 
holders' payments and the interest on them, from 
which the death losses and expenses can be paid. 
This is as applicable in fact to the stock companies as 
to the mutual companies. The stock is only a guar- 
antee and if the premiums were not more than suffi- 
cient to pay the losses the stock capital would be im- 
paired and the guarantee speedily vanish. 

An effort is made in the tables and statistical infor- 
mation of the appendix to give such general knowl- 
edge as will enable a prospective policyholder to nar- 
row down his choice to a few companies. It is not 
intended to recommend any one company. The 
sworn statements of some companies, the largest par- 
ticularly, have been proven to be in some respects 
inaccurate and misleading. To go into details of these 
inaccuracies requisite for their correction would re- 
quire a rehearsal of the testimony which their officials 
have given in the recent New York Legislative Inves- 
tigation. 

In one particular respect though, attention should 
be called to a misleading conclusion which would 



DECIDE FOR YOU BSE LF 181 

result from taking their percentage of the cost of man- 
agement to premiums as the actual fact. These three 
companies, the Equitable, the Mutual and the New 
York Life, besides their reported commissions to their 
soliciting agents on the first year's premiums have con- 
tracted to pay either bonuses or renewal commissions 
and against these other commissions they often al- 
low their agents to receive advances which do not 
appear as disbursements chargeable, as they should 
be, to new business The New York Life had an agent's 
association called the Nylic through which the agents 
received additional financial benefits besides the first 
year's commissions. The assets of the Nylic are in 
part funds secretly diverted from the New York 
Life's treasury and so should be included in the expen- 
ses of management from which they were excluded 
by a system of separate bookkeeping. To what ex- 
tent the new management of these three new com- 
panies will treat the policyholder justly is to be deter- 
mined by the result and not by promises or hopes. So 
far as term or non-participating policies are concerned, 
these three companies are as reliable as any because 
there is no doubt of their solvency, and under a term 
or level premium non-participating policy the policy- 
holder is entitled to no dividends whatever and so has 
an interest in their amount only so far as it affects the 
nature of the general management of the company. 



182 HOW TO BUY LIFE INSURANCE 

The reports of these companies for the next two or 
three years will indicate what the new managements 
are doing. 

The policyholder should not confine his interest in 
his policy to a personal examination of the company's 
statements but he should see that his members of the 
Legislature and the insurance officials of his state are 
made aware that he looks to them to represent him 
and not the insurance managers. His state senator, 
his member of the assembly, and the insurance com- 
missioner of his state should all be made aware that 
he for one will not tolerate any laxity on their part, 
that it is their duty to see that the insurance law 
is in the policyholder's interest and that its enforce- 
ment is solely on his behalf. Such an active rigid 
interest by the policyholder will remove any excuse 
for employing lobbyists or legislative counsel or main- 
taining secret boodle funds or making political contri- 
butions. The policyholders of any state are a large 
enough body to defeat any bill against their interest, 
whether it is a blackmailing attempt of some member 
of the legislature or an amendment desired by cor- 
rupt officers of a mismanaged insurance company. 

With the publicity which has been given in the past 
year to life insurance affairs, there will begin a new 
era of life insurance in which the rights and the du- 
ties of the policyholder should stand forth foremost. 



STATISTICAL APPENDIX 

Page 

1 Simple Compound Interest Table 

2 Progressive Compound Interest Table 

3 Compound Discount Table 

4 Annuity Table 

5 American Table of Mortality 

7 Actual Mortality 

8 Premium Rates 

9 Assessment Rates 
10 Cost of Management 

12 Dividend Table 

13 Gain and Loss Exhibit 

15 Application Blank 

16 Medical Examination 

21 Renewable Term Policy 

22 Level Premium Non-Participating Policy 

22 Deferred Dividend Policy 

23 Ordinary 20 Year Endowment Policy 

23 Gold Bond Policy 

24 Note 

25 Cash Loans, Paid up Insurance and Auto- 

matic Term Insurance 

27 Instalment Benefits 

29 Conclusion 



SIMPLE COMPOUND INTEREST TABLE. 

From 1-40 years, giving the value of $1 principal at simple compound 
nterest at 3, 3£ 4, 5 and 6 per cent. 



Year 


3% 


3*% 


4% 


5% 


6% 


1 


$ 1.03 


$ 1.03 


$ 1.04 


$ 1.05 


$ 1.06 


2 


2 06 
1.09 


1.07 


1.08 


1.10 


1.12 


3 


1.10 


1.12 


1.15 


1.19 


4 


1.12 


1.14 


1.17 


1 21 


1.26 


5 


1.15 


1.18 


1.21 


1.27 


1.33 


6 


1 19 


1.22 


1.26 


1.34 


1.41 


7 


1.23 


1.27 


1.31 


1.40 


1.50 


8 


1.26 


1.31 


1.36 


1.47 


1.59 


18 


1.30 


1.36 


1.42 


1.55 


1.68 


1.34 


1.41 


1.48 


1.62 


1.79 


11 


1.38 


1.46 


1.53 


1.71 


1.89 


12 


1.42 


1.51 


1.60 


1.79 


2.01 


13 


1.46 


1.56 


1.66 


1.88 


2.13 


14 


1.51 


1.61 


. 1.73 


1.98 


2.26 


15 


1.55 


1.67 


1.80 


2.07 


2.39 


1G 


1.60 


1.73 


1 87 


2.18 


2.54 


17 


1.65 


1.79 


1.94 


2.29 


2.69 


18 


1.70 


1.85 


2.02 


2.40 


2.85 


19 


1.75 


1.92 


2.10 


2.52 


3.02 


20 


1.80 


1.99 


2.19 


2.65 


3.20 


21 


1.86 


2.05 


2.27 


2.78 


3.40 


22 


1.91 


2.13 


2.37 


2.92 


3.60 


23 


1.97 


2.20 


2.46 


3.07 


3.82 


24 


2.03 


2.28 


2.56 


3.22 


4.04 


25 


2.09 


2.36 


2.66 


3.38 


4.29 


26 


2.15 


2.44 


2.77 


3.55 


4.54 


27 


2.22 


2.53 


2.88 


3.73 


4.82 


28 


2.28 


2.62 


2.99 


3.92 


5.11 


29 


2.35 


2.71 


3.11 


4.11 


5.41 


20 


2.42 


2.80 


3.24 


4.32 


5.74 


31 


2.50 


2.90 


3.37 


4.53 


6.08 


32 


2.57 


3.00 


3.50 


4.76 


6.45 


33 


2 05 


3.11 


3.64 


5.00 


6.84 


34 


2.73 


3.22 


3.79 


5.25 


7.25 


35 


2.G1 


3.33 


3.94 


5.51 


7.68 


36 


2.89 


3.45 


4.10 


5.79 


8.14 


37 


2.98 


3.57 


4.26 


6.08 


8.63 


38 


3.07 


3.69 


4.43 


6.38 


9.15 


39 


3.16 


3.82 


4.61 


6.70 


9.70 


40 


3.26 


3.95 


4.80 


7.04 


10.28 



PROGRESSIVE COMPOUND INTEREST TABLE. 



Giving the value from 1-40 years of $1 paid annually in advance at 3, 3£, 
4, 5, and 6 per cent. 



Year 


3% 


3*% 


4% 


5% 


6% 


1 


$ 1.03 


$ 1.03 


$ 1.04 


$ 1.C5 


$ 1.06 


2 


2.09 


2.10 


2.12 


2.15 


2.18 


3 


3.18 


3.21 


3.24 


3.31 


3.37 


4 


4.30 


4.36 


4.41 


4.52 


4.63 


5 


5.46 


5.55 


5.63 


5.80 


5.97 


6 


6.66 


6.77 


6.89 


7.14 


7.39 


7 


7.89 


8 05 


8.21 


8.54 


8.89 


8 


9.15 


9.36 


9.58 


10.02 


10.49 


9 


10.46 


10.73 


11.00 


11.57 


12.18 


10 


11.80 


12.14 


12.48 


13.20 


13.97 


11 


13.19 


13.60 


14.02 


14.91 


15.87 


12 


14.61 


15.11 


15.62 


16.71 


17.88 


13 


16.08 


16.67 


17.29 


18.59 


20.01 


14 


17.59 


18.29 


19.02 


20.57 


22.27 


15 


19.15 


19.97 


20.82 


22.65 


24.67 


16 


20.76 


21.70 


22.69 


24.84 


27.21 


17 


22.41 


23.50 


24.64 


27.13 


29.90 


18 


24.11 


25.35 


26.67 


29.53 


32.76 


^9 


25.87 


27.28 


28.77 


32.06 


35.78 


20 


27.67 


29.26 


30.96 


43.71 


38.99 


21 


29.53 


31.32 


33.24 


37.50 


42.39 


22 


31.45 


33.46 


35.61 


40.43 


45.99 


23 


33.42 


35.66 


38.08 


43.50 


49.81 


24 


35.45 


37.95 


40.64 


46.72 


53.86 


25 


37.55 


40.31 


43.31 


50.11 


58.15 


26 


39.71 


42.75 


46.08 


73.66 


62.70 


27 


41.93 


45.29 


48.96 


57.40 


67.52 


28 


44.21 


47.91 


51.96 


61.32 


72.64 


29 


46.57 


50.62 


55.08 


65.43 


78.05 


30 


49.00 


53.42 


58.32 


69.76 


83.80 


31 


51.05 


56.33 


61.70 


74.29 


89.89 


32 


54.07 


59.34 


65.21 


71.75 


96.34 


33 


56.73 


62.45 


68.85 


84.06 


103.18 


34 


59.46 


65.67 


72.65 


89.32 


110.43 


35 


62.27 


69.00 


76.59 


94.83 


118.12 


36 


65.17 


72.45 


80.70 


100.62 


126.26 


37 


68.15 


76.02 


84.97 


106.71 


134.90 


38 


71.23 


79.72 


89.40 


113.09 


144.05 


39 


74.40 


83.55 


94.02 


119.80 


153.76 


40 


77.66 


87.51 


98.82 


126.84 


164.04 



COMPOUND DISCOUNT TABLE. 



Giving the present value of $1 receivable at from 1-40 years hence at 3, 
3£, 4, 5 and 6 per cent, interest. 



Year 


3% 


3*% 


4% 


5% 


6% 


1 


$.970 


$.966 


$.961 


$.952 


$.943 


2 


.942 


.933 


.924 


.907 


.890 


3 


.915 


.901 


.889 


.863 


.839 


4 


.888 


.871 


.854 


.822 


.792 


5 


.862 


.842 


.821 


.783 


.747 


6 


.837 


.813 


.790 


.746 


.705 


7 


.813 


.786 


.759 


.710 


.665 


8 


.789 


.759 


.730 


.676 


.627 


9 


.766 


.733 


.702 


.644 


.591 


10 


.744 


.708 


.675 


.613 


.558 


11 


.722 


.685 


.649 


,584 


.526 


12 


.701 


.661 


.624 


.556 


.497 


13 


.681 


.639 


.600 


.530 


.468 


14 


.661 


.617 


.577 


.505 


.442 


15 


.641 


.596 


.555 


.481 


.417 


16 


.623 


.576 


.533 


.458 


.393 


17 


.605 


.557 


.513 


.436 


.371 


18 


.587 


.538 


.493 


.415 


.350 


19 


.570 


.520 


.474 


.395 


.330 


20 


.553 


.502 


.456 


.376 


.311 


21 


.537 


.485 


.438 


.358 


.294 


22 


.521 


.469 


.422 


.341 


.277 


23 


.506 


.453 


.405 


.325 


.261 


24 


.491 


.438 


.390 


.310 


.247 


25 


.477 


.423 


.375 


.295 


.233 


26 


.463 


.408 


.360 


.281 


.219 


27 


.450 


.395 


.346 


.267 


.207 


28 


.437 


.381 


.333 


.291 


.195 


29 


.424 


.368 


.320 


.242 


.184 


30 


.412 


.356 


.308 


.231 


.174 


31 


.400 


.344 


.296 


.220 


.164 


32 


.388 


.332 


.285 


.209 


.155 


33 


.377 


.321 


.274 


.199 


.146 


34 


.366 


.310 


.263 


.190 


.137 


35 


.355 


.300 


.253 


.181 


.130 


36 


.345 


.289 


.243 


.172 


.122 


37 


.335 


.280 


.234 


.164 


.115 


38 


.325 


.270 


.225 


.256 


.109 


39 


.315 


.261 


.216 


.149 


.103 


40 


.306 


.252 


.208 


.142 


.097 



ANNUITY TABLE 

Showing the present cost of SI receivable annually for from 1-40 years at 
3, 3^, 4, 5 and 6 per cent, interest. 



Year 


3% 


31% 


4% 


5% 


6% 


1 


$ .97 


$ .96 


$ .96 


$ .95 


$ .94 


2 


1.91 


1.90 


1.88 


1.85 


1.83 


3 


2.82 


2.80 


2.77 


2.72 


2. 07 


4 


3.71 


3.67 


3.63 


3.54 


3.46 


5 


4.58 


4.51 


4.45 


4.32 


4.21 


6 


5.41 


5.32 


5.24 


5.07 


4.91 


7 


6.23 


C.ll 


6.00 


5.78 


5.58 


8 


7.02 


6. 87 


6.73 


6.43 


6.21 


9 


7.78 


7.60 


7.43 


7.10 


6.80 


10 


8.53 


8.31 


8.11 


7.72 


7.36 


11 


9.25 


9.00 


8.76 


8.30 


7.88 


12 


9.95 


9.66 


9.38 


8.86 


8.38 


13 


10.63 


10.30 


9.98 


9.39 


8.85 


14 


11.29 


10.92 


10.56 


9.89 


9.29 


15 


11.93 


11.51 


11.11 


10.38 


9.71 


;i6 


12.56 


12.09 


11.65 


10.83 


10.10 


17 


13.16 


12.65 


12.16 


11.27 


10.47 


18 


13.75 


13.19 


12.65 


11.69 


10.82 


19 


14.32 


13.71 


13.13 


12.08 


11.15 


20 


14.87 


14.21 


13.59 


12.46 


11.47 


21 


15.41 


14.69 


14.02 


12.82 


11.76 


22 


15.93 


12.16 


14.45 


13.16 


12.04 


23 


16.44 


15.62 


14.85 


13.48 


12.30 


24 


16.93 


16.05 


15.24 


13.79 


12.55 


25 


17.41 


16.48 


15.62 


14.09 


12.78 


26 


17.87 


16.89 


15.98 


14.37 


13.00 


27 


18.32 


17.28 


16.33 


14.64 


13.21 


28 


18.76 


17.66 


16.66 


14.89 


13.40 


29 


19.18 


18.03 


16.98 


15.14 


13.59 


30 


19.60 


18.39 


17.29 


15.37 


13.76 


31 


20.00 


18.73 


17.58 


15.59 


13.92 


32 


20.38 


19.06 


17.87 


15.80 


14.08 


33 


20.76 


19.39 


18.14 


16.00 


14.23 


34 


21.13 


19.70 


18.41 


16.19 


14.36 


35 


21.48 


20.00 


18.66 


16.37 


14.49 


36 


21.83 


20.29 


18.90 


16.54 


14.62 


37 


22.16 


20.57 


19.14 


16.71 


14.73 


38 


22.49 


20.84 


19.36 


16.86 


14.84 


39 


22.80 


21.10 


19.58 


17.01 


14.94 


40 


23.11 


21.35 


19.79 


^17.15 


15.04 



AMERICAN TABLE OF MORTALITY. 

On which all Old Line Insurance Premiums are based. 







Number 


Death-Rate 




Age 


Number 


Deaths 


Per 1,000 


Expectation of 




Living 


Each year 


Each year 


Life 


10 


100,000 


749 


7.49 


48.72 


11 


99,251 


746 


7.52 


48.08 


12 


98,505 


743 


7.54 


47.45 


13 


97,762 


740 


7.57 


46.80 


14 


97,022 


737 


7.60 


46.16 


15 


96,285 


735 


7.63 


45.50 


16 


95,550 


732 


7.66 


44.85 


17 


94,818 


729 


7.69 


44.19 


18 


94,089 


727 


7.73 


43.53 


19 


93,362 


725 


7.76 


42.87 


20 


92,637 


723 


7.80 


42.20 


21 


91,914 


722 


7.85 


41.53 


22 


91,192 


721 


7.91 


40.85 


23 


90,471 


720 


7.96 


40.17 


24 


89,751 


719 


8.01 


39.49 


25 


89,032 


718 


8.06 


38.81 


26 


88,314 


718 


8.13 


38.12 


27 


87,596 


718 


8.20 


37.43 


28 


86,878 


718 


8.26 


36.73 


29 


86,160 


719 


8.34 


36.03 


30 


85,441 


720 


8.43 


35.33 


31 


84,721 


721 


8.51 


34.63 


32 


84,000 


723 


8.61 


33.93 


33 


83,277 


726 


8.72 


33.21 


34 


82,551 


729 


8.83 


32.50 


35 


81,822 


732 


8.95 


31.78 


36 


81,090 


737 


9.09 


31.07 


37 


80,353 


742 


9.23 


30.35 


38 


79,611 


749 


9.41 


29.62 


39 


78,862 


756 


9.59 


28.90 


40 


78,106 


765 


9.79 


28.18 


41 


77,341 


774 


10.01 


27.45 


42 


76,567 


785 


10.25 


26.72 


43 


75,782 


797 


10.52 


26.00 


44 


74,985 


812 


10.83 


25.27 


45 


74,173 


828 


11.16 


24.54 


46 


73,345 


848 


11.56 


23.81 


47 


72,497 


870 


12.00 


23.08 


48 


71,627 


896 


12.51 


22.36 


49 


70,731 


927 


13.11 


21.63 


50 


69,804 


962 


13.78 


20.91 


51 


68,842 


1,001 


14.54 


21.20 


52 


67,841 


1,044 


15.39 


19.49 


53 


66,797 


1,091 


16.33 


18.79 


54 


65,706 


1,143 


17.40 


18.09 


55 


64,563 


1,199 


18.57 


17.40 


56 


63,364 


1,260 


19.88 


16.72 


57 


62,104 


1,325 


21.33 


16.05 


58 


60,779 


1,394 


22.94 


15.39 


59 


59,385 


1,468 


24.72 


14.74 


60 


57,917 


1,546 


26.69 


14.10 


61 


56,371 


1,628 


28.88 


13.47 


62 


54,743 


1,713 


31.29 


12.86 


63 


53,030 


1,800 


33.94 


12.26 


64 


51,230 


1,889 


36.87 


11.67 


65 


49,341 


1,980 


40.13 


11.10 







Number 


Death-rate 




Age 


Number 


Deaths 


Per 1,000 


Expectation of 




Living 


Each year 


Each year 


Life 


66 


47,361 


2,070 


43.71 


10.54 


67 


45,291 


2,158 


47.65 


10.00 


68 


43,133 


2,243 


52.00 


9.47 


69 


40,890 


2,321 


56.76 


8.97 


70 


38,569 


2,391 


61.99 


8.48 


71 


36,178 


2,448 


67.66 


8.00 


72 


33,730 


2,487 


73.73 


7.55 


73 


31,243 


2,505 


80.18 


7.11 


74 


28,738 


2,501 


87.03 


6.68 


75 


26,237 


2,476 


94.37 


6.27 


76 


23,761 


2,431 


102.31 


5.88 


77 


21,330 


2,369 


111.06 


5.49 


78 


18,961 


2,291 


120.83 


5.11 


79 


16,670 


2,196 


131.73 


4.74 


80 


14,474 


2,091 


144.47 


4.39 


81 


12,383 


1,964 


158.60 


4.05 


82 


10,419 


1,816 


174.30 


3.71 


83 


8,603 


1,648 


191.56 


3.39 


84 


6,955 


1,470 


211.36 


3.08 


85 


5,485 


1,292 


235.55 


2.77 


86 


4,193 


1,114 


265.68 


2.47 


87 


3,079 


933 


303.02 


2.18 


88 


2,146 


744 


346.69 


1.91 


89 


1,402 


555 


395.86 


1.66 


90 


847 


385 


454 . 54 


1.42 


91 


462 


246 


532.47 


1.19 


92 


216 


137 


634.26 


.98 


93 


79 


58 


734.18 


.80 


94 


21 


18 


857.14 


.64 


95 


3 


3 


1,000.00 


.50 



The "Expectation of Life" is the average number of years which healthy 
persons of any given age have yet to live. 



ACTUAL MORTALITY 

Central Life 43 . 85 

Provident Life 50 . 17 

Des Moines 51 . 25 

Pacific Mutual 55 .00 

National Vt 55 . 91 

Conn. General 56 . 28 

Conservative Life 56 . 81 

Columbian Nl 57 .31 

State Mutual 60 . 19 

Union Central 64 . 15 

Northwertern Mutual 66 .37 

New Engiand Mutual 66 . 95 

Aetna 67.18 

Equitable Iowa 68 . 30 

Penn. Mutual 68. 50 

Union Mutual 70 . 19 

Mass. Mutual 70 . 23 

Fidelity Mutual 70 . 33 

Phoenix Mutual 73 . 17 

Germania 73 . 73 

Canada 74. 48 

Manhattan 75 . 79 

National U. S. A 78.47 

Michigan Mutual 79 . 01 

Equitable N. Y 80.06 

Home Life 80.41 

Mutual Benefit 80.88 

New York Life 82.29 

Mutual Life 83.87 

Travelers 84.48 

Security Mutual 84.81 

Washington 86 . 73 

Conn. Mutual 89 . 07 

Provident Savings 98 . 43 

Hartford Life 98 . 61 

United States 100. 99 

This table gives the percentage for 1904 of the actual mortality to the 
American Experience Table. 

The difference in dollars which these percentages indicate appears in the 
Gain and Loss Exhibit. 



PREMIUM RATES 



The premium rates of all Old Line Companies are substantially the same 
for the same kind of policy. In few cases is the difference in initial cost 
over 5 per cent. The greatest difference is in real returns of dividend and 
investment policies. So far as non-participating policies are concerned it 
makes little difference in what well established company the policy is taken 
out. As regards all other policies the difference is great, not so much in the 
first cost as in the return of excess cost as dividends, which the dividend 
table and the gain and loss exhibit more fully show. 

The rates given below are about the average per $1,000. 



Age 


21 


25 


30 


35 


40 


50 


60 


1 


$11.75 


$12.00 


$12.50 


$13.50 


$14.50 


$20.75 


$40.00 


2 


12.50 


13.25 


14.00 


15.00 


16.75 


29.00 


62.50 


3 


15.50 


17.00 


19.75 


25.50 


27.00 


40.00 


64.00 


4 


19.50 


21.35 


24.25 


28.00 


32.75 


48.00 


77.00 


5 


50.00 


50.50 


51.25 


52.50 


54.25 


62.00 


82.50 


6 


65.00 


65.70 


66.75 


68.25 


71.00 


81.00 


108.50 



No. 1 is annual renewable term insurance. 
No. 2 is ten year renewable term insurance. 
No. 3 is level premium non-participating. 

No. 4 is level premium dividend policy, the initial premium charge being 
the same whether the dividend is annual or deferred 
No. 5 is 20 year endowment. 
No. 6 is 20 year endowment five per cent, gold bond. 



ASSESSMENT PREMIUM RATES. 

The cost of insurance in fraternal societies conducted on the assessment 
basis fluctuates greatly. Instead of being almost uniform as in the Old 
Line Companies, the annual premium cannot be exactly .foretold and the 
real cost varies according to the number of assessments. To determine the 
annual cost of insurance protection in these societies the assessment as given 
below should be multiplied by the number of assessments as given in their 
last reports for 1904. In a few of these societies the rates are uniform at 
all ages, in others the rates are level from the age of entry and in others the 
rates increase to a stated age and then become level. Some have reserves 
and some have not. All that can be done in a general statistical compil- 
ation is to give the rates per $1,000 for 1904 with the death rates of several 
of the largest. 





No. of 




Age 




Death rate 




Assessment 








per 1,000 










21 


30 


40 


50 




1. Royal Arcanum. . . . 


12 


8.59 


$ .81 


SI. 20 


SI. 90 


10.41 


2. A. O. U. W. 


12 


.65 


.90 


1.25 


2.00 


7.00 


3. Foresters. . 














of Toronto 


12 


.82 


1.14 


1.68 


1.90 


7.40 


4. Maccabees 














Port Huron 


12 


.95 


1.20 


1.75 


2.75 


7.02 


5. Modern Woodmen 










At 45 




Rock Island 


8 


.50 


.65 


.90 


SI. 00 


5.65 


6. Woodmen of the 














World, Omaha 


12 


.80 


1.00 


1.25 


2.20 


7.55 


7. Ladies of Maccabees 


10 


.95 


1.20 


1.75 


2.70 


6.63 



For cost of the years' insurance, multiply the rate by the number of asses- 
ments. 

The maximum amount of insurance in one of these fraternal societies is 
usually two or three thousand dollars. The minimum is small. The age 
limits at entry are usually 18 to 50 or 55. It is difficult to make a math- 
ematical comparison between these fraternal societies as their rates are 
often re-adjusted and the number of assessments varying from year to year 
necessarily varies the insurance cost,. 



COST OF MANAGEMENT IN 1904. 

Column 1 is total premium receipts in 1904. 

Column 2 is all expenses of management excluding taxes in 1904. 

Column 3 is the percentage of cost of management to premium receipts 
in 1904. 

Column 4 is all payments to policyholders in 1904 including dividends. 

Aetna $9,470,000 $1,757,000 18% $5,688,000 

American Central 566,000 188,000 33 78,000 

American Life 84,000 48,000 56 13,000 

Bankers of Nebraska 475,000 175,000 37 64,000 

Baltimore Life 593,000 277,000 46 247,000 

Bankers' Life of N. Y 784,000 273,000 33 356,000 

Bankers' Reserve 326,000 144,000 40 52,000 

Berkshire 2,425,000 439,000 18 1,542,000 

Boston Mutual 218,000 172,000 78 89,000 

Central Life 213,000 101,000 47 33,000 

Citizen's Life 25,000 23,000 92 10,000 

Columbian National 771,000 372,000 48 80,000 

Connecticut General 914,000 238,000 26 480,000 

Conn. Mutual 5,441,000 1,001,000 18 7,235,000 

Conservative Life 996,000 567,000 58 241,000 

Des Moines 754,000 271 ,000 36 244,000 

Equitable N. Y 62,643,000 13,773,000 22 36,389,000 

Equitable Iowa , 904,000 217,000 24 311,000 

Federal Life 196,000 150,000 77 134,000 

Fidelity Mutual 3,503,000 1,202,000 37 1,277,000 

Franklin Life 1,041,000 397,000 37 343,000 

Germania 4,478,000 1,233,000 27 3,026,000 

German Mutual 43,000 16,000 35 50,000 

Hartford Life 2,389,000 446,000 18 1,797,000 

Home N. Y 3,015,000 838,000 27 1,601,000 

Illinois 1,300,000 560,000 43 829,000 

Inter State 677,000 209,000 30 238,000 

Kansas City Life 157,000 95,000 60 32,000 

Liberal Life 74,000 17,000 23 13,000 

Life of Va 1,680,000 782,000 46 551,000 

Manhattan 2,559,000 941,000 36 1,844,000 

Maryland 277,000 72,000 26 210,000 

Mass. Mutual 6,494.000 1,228,000 18 3,615,000 

Michigan Mutual 1,513,000 477,000 31 885,000 

Minnesota Mutual 672,000 300,000 44 321,000 

Missouri State 308,000 169,000 30 93,000 

Mutual Benefit 13,702,000 2,270,000 16 9,854,000 

Mutual Baltimore 207,000 86,000 41 95,000 

Mutual N. Y 62,932,000 15,517,000 24 34,484,000 

Mut. Reserve 4,480,000 1,555,000 34 3,128,000 

National of U. S. A 1 ,690,000 747,000 44 495,000 

National Vt 5,494,000 1,347,000 24 2,246,000 

New Eng. Mutual 5,339,000 1,170,000 21 3,444.000 

New YorkMutual 80,556,000 18,328,000 23 40,288,000 

NorthwesternMutual 28,040,000 4,414,000 16 16,690,000 

Pacific Mutual 2,116,000 793,000 38 666,000 

Penn Mutual 13,318,000 2,707,000 20 6,342,000 

Phoenix Mutual 3,205,000 725,000 22 $1,801,000 

Presbyterian Min. Fund... 363,000 32,000 8 168,000 

Provident L. & T 6,713,000 1,116,000 16 4,559,000 



10 



provident Sav 3,659,000 1 ,487,000 41 1,898,000 

Register 142,000 50,000 35 55,000 

Reserve Loan 823,000 189,000 23 137-000 

Royal Union 519,000 222,000 42 150,000 

Security Mutual, Neb 138,000 68,000 50 15>000 

44 N. Y 1,452,000 709,000 48 486,000 

Security Trust & L 963,000 480,000 49 445'00G 

South Atlantic 90,000 57,000 63 17,000 

Southwestern 112,000 89,000 80 9,000 

State Life 2,046,000 882,000 43 496,000 

State Mutual 4,078,000 820,000 20 2,102,000 

Travelers 4,840,000 1,016,000 21 2,481,000 

Union Central 7,464,000 1,638,000 21 3,250,000 

Union Mutual 2,154,000 672,000 31 1,085,000 

United States 1,411,000 477,000 34 1,266,000 

Washington 2,733,000 1,032,000 38 2,412,000 

Western & Southern 1,249,000 636,000 51 363,000 

Wisconsin Life 96,000 57,000 60 28,000 

The cost of management is necessarily taken from the company's official 
report. The fact may be in some cases higher, but never lower. 

This is a startling table in its great number of companies where the man- 
agement expenses, exclusive of taxes, exceed all payments of whatsoever 
nature to the policyholders. Compare columns 2 and 4 for the percentage 
of cost of management to the payments to policyholders. 

The caution is repeated of the lack of reliance to be placed on the recent 
reports of the three largest companies. With new officials their reports 
may be more truthful. 



11 



DIVIDEND TABLE. 

This table should of course be taken in connection with the premium 
rates actually charged by the respeotive companies, which vary somewhat. 
Deducting tbe dividend from the premium gives the actual net cost for 
purposes of comparison. 

Column 1 is percentage of dividends to premium receipts for the year 1904. 

Column 2 is the percentage of all dividends paid to all premiums received 
since the organization of the company. 

Column 3 is the percentage of surplus which accrued in 1904 in excess of 
dividends. 

Column 4 is the total surplus accrued since organization in excess of all 
dividends paid since organization. 

Columns 1 and 3 together show the total percentage of all "earnings and 
savings" for 1904 to all premium receipts for 1904. 

Columns 2 and 4 together show the total percentage of all "earnings 
and savings" since organization to all premium receipts since organization. 

The number of dollars dividends paid in 1904 appear in the gain and loss 
exhibit. 

The number of dollars of premium receipts in 1904 appear in the cost of 
management table. 

This table gives only the percentages to premium receipts of dividends 
paid and of surplus not distributed. 

"Earnings and Savings" is the technical insurance term for the excess 
of actual cost over premium charges. 



Connecticut Mutual 


21.72 

19.51 

15.55 

14.33 

14.03 

13.57 

13.15 

11.84 

10.35 

10.07 

9.97 

8.74 

8.33 

7.44 

7.43 

7.40 

7.35 

7.09 

5.84 

5.01 

4.95 

4.79 

4.60 

3.84 

3.26 

2.03 


28.44 
15.70 
14.67 
23.75 
14.60 
14.24 
13.57 
18.07 
10.35 

7.43 

9.40 
18.53 
13.35 

4.95 

8.05 

9.35 
13.94 
13.73 

8.00 
10.17 
11.48 

6.20 
11.14 

5.67 

9.98 

5.72 J 


3.71 
5.52 

10.05 
4.49 
8.13 
9.02 

24.31 
8.86 
2.37 
2.86 

11.20 

3.71 

.25 

13.86 

1.30 

.53 

8.42 

11.74 
5.35 
3.22 
4.10 
4.91 

21.01 

10.44 

—11.32 

.14 


2.66 


Northwestern Mutual 


10.38 


Massachusetts Mutual 


4.17 


Mutual Benefit 


2.85 


Berkshire 


2.56 


State Mutual 


5.37 


Provident L. and T. Phil 


7.58 


New England 


3.47 


Equitable D. M 


6.84 


United States 


.46 


Equitable N. Y 


9.39 


Phoenix Mutual 


1.26 


Home 


2.23 


Union Central 


9.42 


Pacific Mutual 


1.78 


New York 


5.63 


Aetna 


3.95 


Penn. Mutual 


6.16 


Germania 


5.55 


Union Mutual 


1.26 


Manhattan 


2.63 


Connecticut Gen'l 


3.96 


Mutual 


7.38 


National of Vt 


5.75 


Washington 


.13 


Michigan Mutual 


.88 



12 



GAIN AND LOSS EXHIBIT 

This is the summary of the financial and business management of the Old 
Line Companies which the Minnesota and Wisconsin insurance departments 
require. In a separate table the percentages are given of the actual net 
mortality to the mortality of the American Experience table. The per- 
centage of expenses of management to premium receipts is also given in 
a separate table. 

As is more fully explained in the chapter on cost of insurance every pre- 
mium is necessarily higher than the actual cost in order to allow a margin 
for safety. In all dividend policies this excess charge should be returned 
with interest to the policyholder. In all non-participating policies 
the policyholder 'waives his right to any return of excess charge in con 
sideration of a lower premium. Theoretically the dividend policy should 
be the cheaper in the end and in the most economically managed annual 
dividend companies it frequently is cheapest in the long run, but in the 
deferred dividend policies the holder has failed as a rule to get back his 
excess payments with interest and would have been better off had he taken 
the non-participating policy with a lower initial charge. 

The following table gives the items of gain and loss and also the sum paid 
in dividends. In almost all cases the expenses of management exceeded 
the expense loading, and in case of this and other losses the amount is pre- 
fixed with a minus sign. 

These statements may not be wholly accurate especially in the case of 
the three largest New York Companies, but they were compiled by their 
oificers, sworn to by them and any variation from the fact is not likely to 
be to the disadvantage of the company. As some companies do not furnish 
a gain and loss exhibit this table is incomplete, but it includes almost al* 
the best known companies except the Industrials. 



13 



(Difference between loading and expenses of management) 
(Difference between the Experience Table and the actual 



1. Expenses. 

2. Mortality. 
tality.) 

3. Surrenders and Lapses. (Difference between the real value and the amount 
paid the policyholder) who surrendered their policies. 

4. Excess Interest. (Difference between the reserve rate and the investment 
return) 

5. Total Gains, being the sum of excess charges over actual cost of insurance. 

6. Repaid to Policyholders in Dividends. 





1 


2 


3 


4 


5 


6 


Aetna 


-$ 183,000 


$ 830 000 


$ 206,000 


$ 482,000 


$ 1,335,000 


$ 724,000 


Canada 


-307,000 


281,000 


84,000 


322,000 


380,000 


68,000 


Central 


-15,000 


31,000 


1,000 


8,000 


23,000 


104 


Chicago 


-70,000 


24,000 


5,000 


6,000 


-42,000 




Columbian 


-151,000 


58,000 


182,000 


9,000 


115,000 


22,000 


Conn. Gen 


-107,000 


108,000 


28,000 


44,000 


75,000 


41,000 


Conn. Mut 


185,000 


249,000 


79,000 


268,000 


784,000 


1,161,000 


Conservative. . . . 


-138,000 


122,000 


36,000 


29,000 


37,000 


1,500 


Des Moines 


6,000 


141,000 


31,000 


9,000 


187,000 


208 


Equitable, N. Y. 


1,465,000 


3,204,000 


1,175,000 


3,174,000 


9,020,000 


6,086,000 


Equitable Iowa . 


8,000 


55,000 


19,000 


67,000 


150,000 


94,000 


Federal 


-15,000 


37,000 


-6,000 


19,000 


26,000 


4,000 


Fidelity Mut.... 




448,000 


26,000 


42,000 


515,000 


47,000 


Germania 


-147,000 


251,000 


185,000 


231,000 


521,000 


259,000 


Hartford 


-35,000 


24,000 


61,000 


76,000 


127,000 


51,000 


Home 


-137,000 


151,000 


180,000 


83,000 


278,000 


249,000 


Interstate. ... 


16,000 


50,000 


3,000 


6,000 


66,000 


238,000 


Manhattan 


-235,000 


210,000 


118,000 


187,000 


273,000 


125,000 


Mass. Mut 


400,000 


556,000 


124,000 


186,000 


1,266,000 


1,009,000 


Mich. Mutual. . 


-100,000 


95,000 


17,000 


43,000 


48,000 


31,000 


Minn. Mutual... 


-90,000 


63,000 


14,000 


15,000 


2,000 


25,000 


Mutual Benefit.. 


388,000 


966,000 


217,000 


624,000 


2,197,000 


1,931,000 


Mutual, N. Y... 


-1,305,000 


2,938,000 


2,188,000 


2,803,000 


6,624,000 


2,674,000 


Nat'l. U. S. A... 


-238,000 


75,000 


37,000 


95,000 


-24,000 


1,724 


National Vt. . . . 


-240,000 


637,000 


142,000 


136,000 


676,000 


195,000 


NewEng. Mut. . 


70,000 


571,000 


101,000 


146,000 


890,000 


579,000 


N. Y. Life 


41,000 


3,481,000 


1,892,000 


2,741,000 


8,157,000 


5,998,000 


Nrthwstn. Mut. . 


1,085,000 


2,343,000 


435,000 


2,449,000 


6,313,000 


5.463,000 


Pacific Mutual . . 


-94,000 


238,000 


12,000 


59,000 


215,000 


156,000 


Penn Mutual . . . 


342,000 


1,142,000 


267,000 


293,000 


2,045,000 


1,506,000 


Phoenix Mutual 


-171,000 


239,000 


104,000 


166,000 


339,000 


283,000 


Prov'dt.L.&T... 


-12,000 


832,000 


96,000 


809,000 


1,695,000 


874,000 


Prov'dt Savings. 


-263,000 


21,000 




357,000 


116,000 


174,000 


State Life 


►104,000 


150,000 


25,000 


85,000 


107,000 


65,000 


State Mutual. . . 


113,000 


428,000 


73,000 


112,000 


728,000 


552,000 


Travelers 


►531,000 


199,000 


399,000 


261,000 


318,000 


986 


Union Central. . 


-181,000 


706,000 


115,000 


947,000 


1,587,000 


554,000 


Union Mutual... 


►196,000 


187,000 


80,000 


56,000 


40,000 


107,000 


U. S. Life 


-68,000 


-4,000 


127,000 


37,000 


91,000 


140,000 


Wash' ton Life. . 


►291,000 


97,000 


198,000 


-17,000 


-12,000 


89,000 


Wisc'n'sin Life. . 


-4,000 


1,000 


202 


3,000 


649 


000 



Some seeming discrepancies between column five in this table and column 3 in 
the dividend table are caused by fluctuations in the market value of the securities 
held as assets. 



14 



APPLICATION BLANK 

(i) 

Policy Form PART I. No 

APPLICATION TO THE. .. .LIFE INSURANCE COMPANY, OF.... 

1. Part 1 of Application of. . . . (Name in full). .For Life Insurance. . 
Residence. . . .County of . . . .State of. . . .P. O. Address 

2. Full, name of the person for whose benefit the insurance is desired. . . . 

Relationship to yourself 

3. Occupation or Employment. (If more than one, state all) 

4. Place and date of tour Birth?. . . .|Day. . . .|Month. . . . |Year. . . . 

5. Have you ever applied for Insurance in this Company? // so, 
what is the number and amount of each policy issued? 

6. Is your life now insured in any other company? If so, in what 
companies and for what amount? Only 

7. Have you ever applied to any company or society for insurance, with- 
out receiving a policy of the exact kind and amount applied for? 

8. Is any negotiation for othep insurance now pending or contem" 
plated? 

9. Policy — Amount, $ . . . . Kind .... How Payable — Annualy, Semi- Annu- 
ally or Quarterly 

10. Have you paid the Agent taking this application the premium on the 
same? 

I DO HEREBY DECLARE AND AGREE that all statements and an- 
swers contained in this application marked Part 1 , and in the supplement 
hereto marked Part 2, are hereby warranted to be true, and such statements 
and answers and all agreements herein contained are offered to said The. . . . 
Life Insurance Company as a consideration for the policy applied for and 
to be construed therewith as parts thereof; and that no other statements, 
representations or information made or given by or to the person soliciting 
or taking this application for insurance, or by or to any otherperson, shall 
be binding on the said company unless the same be reduced to writing and 
made a part of this appl cation. 

AND 1 DO FURTHER AGREE that if the amount of the premium on 
the insurance herein applied for is not paid when this application is made 
no contract of insurence shal 1 be deemed made and no liability on the part 
of said company shall arise until a policy shall be issued and delivered to 
me, nor until the first premium thereon shall be actually paid while I am in 
good health: but that if the amount of said premium is paid at the time of 
making this application, the receipt for advance payment of premium given 
me, if on the form now attached hereto, shall determine the conditions upon 
which and the time when the insurance applied for shall take effect. 

AND I DO FURTHER AGREE that if within two years from the date 
of saidpolicy I shall pass south of the Tropic of Cancer, or be personally en- 
gaged in blasting, mining or sub-marine operations, or in the production of 
highly inflammable or explosive substances, or in electrical employment 
where the voltage is over 600, or in switching or coupling or uncoupling cars, 
or be employed in any capacity on the trains of a railroad, except as passen- 
ger or sleeping car conductor, mail agent, express messenger or baggage- 
master, or in ocean navigation, or shall enter or be engaged in any military 
or naval service (except in time of peace), without the written consent of 
said company, or shall within one year from the date of said policy, whether 
sane or insane, die by my own hand, then, and in every such case any policy 
issued on this application shall be null and void. 

Name in full of the Beneficiary {may be signed by applicant) 

Per(Initials of Applicant) Signature in full of the 

person applying for insurance on his life 

Dated at (Actual date of signature to application.) this . , 

day of 190. . 

15 



If the premium is paid in advance this receipt must be completed and 
given to the applicant; IF THE PREMIUM IS NOT PAID THE RECEIPT 
MUST NOT BE DETACHED. 

No other Form of RECEIPT FOR ADVANCE PAYMENT OF PREMIUM 
will be Recognized by the Company. 



An application for a $ 

Policy having been made by to 

THE. . . .LIFE INSURANCE COMPANY, 

there has been collected of him DOLLARS 

to be considered the first (Annual, Semi-Annual or Quarterly) 

premium on said Policy, provided the application is approved by the Com- 
pany, at its Home Office, and in that event, the insurance as applied for 
will be in force from the date of the Medical Examination. If the appli- 
cation is not so approved, the sum collected will be returned. 
190. . Agent. 

E R C DO NOT WRITE ABOVE THIS LINE. 

AGENTS CERTIFICATE. 



Insurable Age. . . .Premium $ Name(of Applicant) 

Kind of Policy Amount of Policy $ 

1. How long and how intimately have you known applicant? 

2. Are you satisfied after thorough personal investigation, that he is 
and has been of temperate habits? 

3. What amount of other insurance is contemplated? $ 

4. About what is his annual income? $ 

note — If you have no knowledge so state. 

5. By whom was this insurance suggested? 

6. I hereby certify that I hereby personally solicited and secured the 
application of the above named applicant and know he is the person de- 
scribed in Parts I, II and III of this application. I know nothing affecting 
the risk which is not fully set forth in these papers, and I do unqualifiedly 
recommend the acceptance of the risk by the Company. 



Soliciting Agent. 

Agent. 
General Agent 



MEDICAL EXAMINATION. 

Part II. Declarations Made to the Medical Examiner of the 

Life Insurance Co. 



n. b. — Answers to the following questions must be elicited and recorded 
by a regularly appointed Examiner of the Company, with no one present 
but the Applicant and Examiner. 

1. a. Part II of Application of for Life Insurance 

which forms part of the accompanying application signed by the 
undersigned applicant and marked Part I. Said application is to 
be hereto annexed. 

e. Race (white or black?) c. Age last birthday? d. Are 
you married, single or a widower? 

2. a. Where do you reside winter and summer? 

b. Where have you resided during the past ten years? 

c. Have you ever changed your residence or tried a change of climate 

on account of your health, or been advised to do so by a physician? 
If so, give particulars. 

16 



D. Do you contemplate, for any reason, either a temporary or perma- 
nent change of residence, or a trip beyond the limits of the temper- 
ate zone? If so give particulars. 

3. a. How much Insurance are you applying for in this application? 

u. Has any proposal or application to insure your life ever been made 
to any Company, Society, association or Agent upon which a 
policy has not been issued as applied for? 

c. Has any physician ever given an opinion that you were not safely 

insurable? 

d. When and for what Company were you last examined for life insur- 

ance? 

4. a. What is your present occupation and how long have you been so 

engaged? 

b. Have you any other occupation or business? 

c. What have been your occupations during the past ten years? 

d. Do you contemplate a change in occupation? If so what? 

e. Are you now, or have you ever been engaged, either directly or in- 

directly in the sale or manufacture of malt or other spirituous bever- 
ages? 
5 a. To what extent, if any, has your weight increased or diminished 
during the past year, and from what cause? 

b. If heavy or light weight, state whether this is a family or individual 
characteristic. 

C Which parent do you resemble physically? 

6. a. If you use wine, spirits, malt liquors or other alcoholic beverages, 

state kind used and how much in any one day at the most. See 
Note 1. 

b. How frequently do you use the amount stated? 

c. If you use any of them daily, weekly or monthly, state kind and aver- 

age for the past two years. 

d. Have you used any of them to the extent of intoxication during the 

past ten years? 

e. Have you ever taken treatment for alcoholic or drug habit? 

f. If a total abstainer, how long have you been so? 

g. In what form and to what extent do you use tobacco? 

h. Do 3'ou now or have you ever used opium, chloral, cocaine or any 
other narcotic drug? 

7. see note II. 

Father. Age if living. . . .State of health. . . .Age if dead. . . .Specific 

cause of death .... Duration and character of fatal illness .... Previous 

health. . . . 
Mother. Age if living. . . .State of health. . . .Age if dead. . . .Specific 

cause of death .... Duration and character of fatal illness .... Previous 

health. . . . 
Brothers. m No. living. .No. dead. . Age if living. . . .State of health 

.... Age if dead .... Specific cause of death .... Duration and charac- 
ter of fatal illness .... Previous health .... 
Sisters. No. living. .No. dead. . Age if living. . . .State of health. . . . 

Age if dead .... Specific cause of death .... Duration and character of 

fatal illness .... Previous health .... 
Father's Father Age if living. . . .State of health. . . .Age if dead. . 

Specific cause of death .... Duration and character of fatal illness . . 

Previous health. . . . 
Father's Mother. Age if living. . . .State of health. . . .Age if dead. . 

Specific cause of death .... Duration and character of fatal illness . . 

Previous health .... 
Mother's Father. Age if living. . . .State of health. . . .Age if dead. . 

Specific cause of death .... Duration and character of fatal illness . . 

Previous health .... 
Mother's Mother. Age if living. . . .State of health. . . .Age if dead. . 

Specific cause of death .... Duration and character of fatal illness . . 

Previous health. . . . 

8. Have either of your parents, or any of your uncles, aunts, brother! 
or sisters been afflicted with Consumption? — or Scrofula, Cancer, Insan 
ity, Epilepsy, Gout, Diabetes or Rheumatism? 

17 



9. Are you brought in close contact with a consumptive? See note 
III. 

10. a. When were you last confined to the house by illness? What 

was its nature? 

b. When did you last consult a physician, and for what? 

c. Have you fully recovered, and are you now in good health? 

d. Give name and address of the physician who attended you. 

e. Give name and address of your usual medical attendant. 

f. Are you willing your physician be consulted respecting your health? 

11. Give in detail all illnesses, diseases or accidents you have had during 
past ten years not mentioned above. 

Illness, disease or accident. . . . Date. . . . Duration. . . .Severity. . . . 
Results. . . .Name of Medical attendant. . . . 

12. Have you had since childhood any of the following diseases or dis- 
orders? See question 10 — opposite page. 

Malarial or other Fevers, Smallpox or Varioloid, Appoplexy or Paral- 
ysis, Mental Derangement or any Nervous Disease, Headaches, 
severe, potracted or frequent, Indigestion, Appendicitis or any Dis- 
ease of Stomach or Bowels, Persistent or frequent Cough or Hoarse- 
ness, Spitting or raising of blood, Asthma or shortness of breath, 
Pleurisy, Bronchitis, Pneumonia or any Chest or Lung Disease, Ver- 
tigo, Dizziness or Unconsciousness, Fits, Epilepsy, Delirium Tremens 
or Convulsions of any kind, Impairment of Eyesight or Hearing, Dis- 
charge from Ear or any other Chronic Discharges, Piles, Fistula or 
any other Disease of the Rectum, Chronic or Frequent Diarrhoea or 
Dysentery, Affection of the Liver or Spleen, Jaundice or Dropsy, 
Hepatic or Renal Colic or Calculus, Gravel, Bladder or Kidney Dis- 
ease, Painful, frequent or difficult Urination, Sunstroke or Fainting 
Spells, Palpitation or any Disease of the Heart, Enlarged Veins, Can- 
cer, Tumors, or Ulcers of any kind, Hydrocele or any disease of the 
Testicles or Prostate gland, Neuralgia or Sciatica, Skin Disease, Gout 
or Scrofula, Spyhilis or Stricture? 
State how frequently, the date, character and duration of each, and its 
effect upon your health? Of the above named diseases or disorders 
I have had none except 

13. a. Are you opposed to vaccination? b. // so and you have not had 

Smallpox or Varioloid, Will you accept a policy containing the Small- 
pox clause ? See copy in rate IV. 

14. a. Are you ruptured? b. // so do you wear a truss constantly except 

when in bed? 

15. a. Have you ever had Inflammatory or Articular Rheumatism? 

b. // so, state the number of attacks, c. The duration of each attack. 
d. In what years, and parts affected. 

16. Have you ever applied for a pension? If so, what was the disability? 

17. Have you undergone any Surgical Operation, or ever had disease 

of bones, of joints, spinal curvature, or any bodily malformation? 

18. Has a Physician at any time expressed an opinion that your urine 

contained either sugar, albumen or casts? 

19. Have you had since childhood any chronic or constitutional disease 

or severe injury not fully set forth above? 
Signed by applicant in my presence. 

M. D. 

Medical Examiner. 
I certify that my answers to the foregoing questions and statements a^e 
correctly recorded, 



Signature of Applicant. 
(Signed in presence of Medical Examiner.) 



18 



SPECIAL REPORT OF EXAMINER. 

N. b. — This examination must not be made by a relative of the applicant or 
agent, nor any one pecuniarily interested in the policy. 

1. a. State the'rate and quality of the pulse. (Count at least one minutr. 

If over 88 or below 60, examine at another time, and report the result 
of each examination.) 

b. Is the pulse intermittent, irregular, or does it reveal undue strength 

or weakness of heart's action? 

c. Is there any evidence of atheroma, aneurysm or varicose veins? 

(In examining chest always remove outer clothing and starched shirt.) 

d. Are the heart sounds perfectly normal? 

( The heart should be examined both in^ the recumbent and erect posi- 
tions, with the stethoscope over bared skin.) 

e. Is there any indication of hypertrophy of the heart? Do you 

find the apex beat outside of normal area?^ 

2. a. Is the chest well formed and is the expansion at the apex of each 

lung good? 
b. Does ausculation and percussion of the chest reveal any abnormal 
condition in either lung — any rales, evidence of former pleurisy, 
emphysema, asthma, or indication of previous disease? 

3. State measurement of chest (bared) on line of nipples: a. Full in- 

spiration, b. Expiration. 

4. Have you carefully examined the abdomen and do you find the ab- 

nominal organs of normal size, free from tenderness and in a healthy 
condition.? 

5. a. Has he hernia? If so, state kind. 

b. Have you examined it, and do you find that a suitable truss is worn? 

6. a. Do you find a scar of successful vaccination? _ b. State location. 

7. a. Was the urine examined voided by the applicant in your pre- 

sence? 
b. Does applicant rise at night to urinate? 

8. a. Actual weight in ordinary clothing, witnout overcoat. (If Hight 

approximates maximum or minimum, the examiner must weigh the 
applicant.) 

b. Height in shoes. (Each applicant must be measured at time of exam- 

ination.) 

c. Girth at umbilicus, without contraction of abdomen. (Be par- 

ticular to record normal measurement.) 

9. Any suspicion, past or present, of enlarged prostate, stricture, gonorr- 

hoea or syphilis? (If applicant objects for confidential reasons to 
having this application pass through the hands of the agent, mail 
with your voucher direct to the medical department.) 

10. Did you read each question in 12, Part II and elicit explicit answers 

from applicant to each, and are you satisfied their meaning was 
fully understood by him? 

11. Judging from his appearance and statements and your knowledge of 

his health record, are you satisfied he uniformly enjoys good health? 

12. Does S"B appear older than the age stated? 

13. Any need of statement from applicant's medical adviser? 

(If so, and you find it impracticable for you to secure same, require appli- 
cant or agent to do so.) 

A telephonic communication recorded by Examiner under "Additional 
remarks" would be acceptable. 

14. Are you in any way related to the applicant or agent? 

15. Have you any personal knowledge of the habits, past and present, 

and the general standing of the applicant? 

16. Have you any reason to suspect unacknowledged over-indulgence in 

the use of stimulants, or the use of narcotics, now or in the past? 

17. How long have you known the applicant and how intimately? 

18. Where was this examination made? At the applicant's place of busi- 

ness, residence or the examiner's office? When examining appli- 
cant insist on noiseless surroundings. 

19. At the time you elicited and recorded the foregoing declarations and 

during the examination, was there anyone present other than the 
applicant and yourself? 

19 



20. Can you discover anything unfavorable in his manner of living, phys- 

ical condition, personal or family history, not already mentioned? 

21. Are you satisfied applicant would seek medical advice in case of ill- 

ness? 

22. Do you unqualifiedly recommend the acceptance of this risk for a 

hie policy? (Answer "I do" or "I do not") See Note VII. *See 
voucher below. 
I certify that the above is a record of a careful examination of the person 

described in and whose signature is affixed to the foregoing declarations, and 

that the examination was made this. . . .day of. . . .190. . 

Examined at, Town County State (Medical Examiner). . . . 

....M. D. 

N. b. — If not a regularly appointed Examiner of the Company, fill the 

following blank. (P. O. Address of Medical Examiner) .... 

Where graduated Date of Graduation. . . . 

Reference M. D. P. O. Address 

Reference M. D. P. O. Address 

Additional Remarks — State anything discovered by you which may in- 
fluence the character of the risk, and which is not set forth fully in the 
foregoing answers. 

These Instructions are Imperative and must not be deviated from 
in any manner. 

Note 1. The answer to question 6 must be definite and convey a clear idea 
as to the past and present habits of the applicant in the use of stimulants. 
Such answers as "moderately," "temperately," or "not to excess" and the 
like, will not be accepted. 

If there is a history of over-indulgence or a free use of stimulants, a full 
explanation will be required over the signature of the applicant. 

Note II. In giving the cause of death elicit the specific disease; such 
terms as "exnosure," "effects of cold," "general debility," "child-birth,", 
"change oi life/' "liver complaint," "fever," "intemperance," etc., will not 
be accepted by the Company without an explanation. 

In all cases of uncertain cause of death the report should, if possible_ 
state explicitly that phthisis was or was not an element of the fatal illness" 

Note III. If a member of applicant's family has tuberculosis, or he is asso^ 
ciated closely at his place of business with persons suffering from tubercu" 
losis, see that the application contains full particulars as to relationship and 
as to precautions to prevent infection. 

Note IV. Smallpox clause. "The insured under this policy having 
stated he is opposed to vaccination and that he has not had smallpox or 
varioloid, it is hereby stipulated and agreed that should his death be caused 
by, or in consequence of small pox or varioloid the Company will be liable 
only for the reserve then held for the policy; Provided^ however, that if the 
Company shall receive at its home office during the life time of the insured, 
evidence satisfactory to the Company that since the date of this policy the 
insured has been vaccinated or is no longer opposed to vaccination, or has 
had smallpox or varioloid, and has fully recovered it will thereupon assume 
the full risk of death from smallpox or varioloid: it being, however, further 
stipulated and agreed that in any case all otner conditions^ of the policy, 
and of the application therefor, shall have been complied with by the said 
insured." 

Note V. The Examiner should exercise great care in the exploration of 
the thorax. In all cases insist upon the chest being bared, or at least covered 
only by the under-garment. 

The Examiner should be thorough in his examination, no matter how 
well he may know the applicant, or how vigorous he may appear. 

Note VI. The urine must invariably be voided in the presence of the Med- 
ical Examiner to enable him to know positively that the specimen examined 
i3 that of the applicant, and he must refuse to examine a specimen received 
in any other way. This is not only a protection to the honest applicant and 
policy-holder, but also to the Examiner. 

The Examiner should test for sugar and albumen in every sample he 
examines, no matter what the specific gravity may be. If in previous exam- 
inations either has been found, if only a trace, this fact should appear on 

20 



the application. Examine the urine in every case. Heller's test for albu- 
men and Haines' or Fehling's test for sugar preferable. See instructions 
18 and 19, page 9, of the "Instructions to Medical Examiners." 

Note VII. To be eligible for a life policy the applicant should possess 
good health, a good constitution and a good prospect for attaining old age. 
If not eligible for Life Policy and his chances are good for living a term of 
years, he may be insurable under an Endowment Policy which would term- 
nate within the period of his prospective deterioration. (A Life Policy 
where the premiums are paid within a fixed number of years, should not be con- 
founded with an Endowment Policy.) 

Note VIII. The answers in the declarations made to the Medical Exam- 
iner should be free from alteration, interlineation and erasure, or when 
unavoidable, the same must be attested by the applicant's initials. No 
one except the applicant has the right to change any of the answers oyer his 
signature. Likewise, corrected or changed answers in the examination 
must be attested by the Examiner. 

Note IX. Whenever you postpone or do not recommend a risk, or should 
you give an adverse opinion on a risk, or decline to examine the applicant 
because of foreknowledge of his ineligibility, you are required to commu- 
nicate the fact at once to the Medical Department at the Home Office. 

Note X. If for any reason you should prefer not to state in the application 
certain facts disclosed by the examination, you should at once write a letter 
to the Medical Department, giving such facts in detail. Nothing affecting 
a risk should ever be withheld from the Home Office. Correspondence with 
respect to an applicant, if so desired, is always considered confidential. 

to be filled at mome office 
bec'd approved 

M. D. 

L. BOOK RECONSIDERED AND APPROVED 

M. D. 

REJECTED 
M. D. 



LIFE INSURANCE COMPANY 

Ten-Year Renewable Term Policy 

Amount, $10,000 Annual Premium $145.00 Age 35. 

The Life Insurance Company, in consideration of the statements 

and agreements made in the application for this policy, which is hereby 
made part of this contract, and in further consideration of the payment of 
one hundred forty-five dollars, the receipt whereof is hereby acknowledged, 
and of the annual payment of a like sum (subject to increase after ten years 
as hereinafter stipulated) to the said company, at or before twelve o'clock 
noon on or before the thirteenth day of October in every year during the con- 
tinuance of this policy, promises to pay, at its office in . . . .unto Jane Doe, 
beneficiary, wife of John Doe, the insured, of,. . . . in the State of. ... , sub- 
ject to the rights of the insured to change the beneficiary or beneficiaries as 
hereinafter provided, the sum of ten thousand dollars, upon receipt and ap- 
proval of proofs of the fact and cause of the death of said insured while this 
policy is in force, if such death shall occur within the period of ten years from 
the date hereof, or within any succeeding period for which this policy may 
be renewed, the balance of the year's premium, if any, being first deducted 
therefrom; provided, however, that if no beneficiary shall survive the said 
insured, then such payment shall be made to the executors, administrators 
or assigns of the said insured. 

At the expiration of ten years from the date thereof and at the expiration 
of any succeeding ten-year period, this policy, if then in force, may be re- 
newed without medical examination for a further period of ten years; but 
at each such renewal the premium for the new period, payable each year 
thereof at the times for premium payment above specified, shall be increased 
to an amount corresponding to that stated in the table printed on the second 
page of this policy for the attained age of the insured. 

This policy shall share in the surplus annually, as apportioned by the com- 

21 



pany, after two years from the date hereof, until all the contributions to the 
surplus found to have arisen from this policy shall have been returned; but 
no dividend shall be payable at or after the time of default in the payment 
of any premium unless the policy shall be reinstated. 

This policy shall not take effect until the first premium shall have been 
actually paid while the insured is in good health, and is issued and accepted 
by the parties in interest subject to the provisions and benefits stated on the 
second page hereof which ase hereby made a part of this contract. 

In witness whereof, The Life Insurance Company, at its office in 

has by its president and secretary executed this contract, this thir- 
teenth day of October, one thousand nine hundred and five. 



LEVEL PREMIUM POLICY. 

Straight Life, Non-participating 
Amount $10,000 Premium $18700 Age 30 

IN CONSIDERATION of the covenants and agreements made and con- 
tained in the application for this Policy (which are made a part of this 
contract), and of the Annual Premium of One Hundred, Eighty-seven Dol- 
lars and no cents, to be paid at the Home Office of the Company, in. ... on 
or before the first day of January in every year during the continuance of 
this contract, Does Promise, on receipt at its Home Office of satisfactory 

E roofs of the death, during the continuance of this contract, of John Doe 
erein called the Insured, of New York County of New York, State of New 
York to pay at its said Home Office to Mary G. Doe, wife of the said Insured 
if surviving, or if she shall not survive the Insured, to the executors, admin- 
istrators or assigns of the Insured, Ten Thousand dollars, any indebtedness 
of the Insured or on behalf of the beneficiary to be first deducted therefrom, 
together with the unpaid portion, if any, of the premium for the current 
policy year. 

The non-forfeiture provisions and all conditions and privileges written 
or printed by the Company on the following pages are hereby referred to and 
made a part of this contract as fully as if recited at length over the signa- 
tures hereto affixed. 

In Witness Whereof, the Life Insurance Company has 

caused this Policy to be signed by its President and Secretary at 

its office in the City of , the 1st day of January, a. d. 

one thousand nine hunderd and six. 

JOHN SMITH, 
President 
JOHN ROBINSON, 
Secretary, 



DEFERRED DIVIDEND POLICY. 

. . . .Life Insurance Company agrees to pay. . . .Dollars to of the 

Insured, or to such Beneficiary as may have deen designated in the manner 
herein provided, at the Home Office of the Company, in the City of New 
York, immediately upon receipt and approval of proofs of the death of John 
Doe, the Insured. 

change of beneficiary — The insured may change the Beneficiary at 
any time and from time to time, provided this policy is not then assigned. 
The Insured may, however, declare the designation of any beneficiary to be 
irrevocable; during the lifetime of an Irrevocable Designated Beneficiary 
the Insured shall not have the right to revoke or change the designation of 
that Beneficiary. If any Beneficiary or Irrevocably Designated Beneficiary 
dies before the Insured, the interest of such Beneficiary shall vest in the 
Insured. Every change, designation or declaration must be made by the 
written notice to the Company at the Home Office, accompanied by this 
Policy, and will take effect only when endorsed on this Policy by the Com- 
pany. 

This policy participates in the Profits of the Company as herein provided; 



22 



The Accumulation Period will end twenty years after the date specified on 
the third page as the date on which the Policy takes effect. If the Insured 
is living at the end of the Accumulation Period, and if the premiums have 
been duly paid, and not otherwise, the Company will apportion to this 
Policy its share of the Accumulated Profits and the Insured shall then have 
the option of one of the following 

Six Accumulation benefits. 

1. Receive the Profits in cash, and continue this Policy on further pay- 
ment of premiums; or 

2. Receive the Profits, converted into an Annual Income for Life, and con- 
tinue this Policy by the payment of the same; or 

3. Receive the Profits, converted into Additional Non-participating Paid- 
up Insurance, subject to evidence of insurability satisfactory to the Company 
and continue this Policy by payment of premiums; or 

4. Receive the Entire cash Value, as stated oelow, converted into an 
Annual Income for Life, and discontinue this Policy; or 

5. Receive the Entire Cash Value, as stated below, in cast and discon- 
tinue this Policy. 

6. Receive the entire cash value converted and paid up Insurance payable 
at death and discontinue this policy. 

This Policy is in the Standard Accumulation Class, and the mortality 
experience of the Company among persons insured in that class will be used 
in determining its share of the Profits. 

the company will send to the insured, before the end of the accumu- 
lation period, a written statement of the results under the five Accumulation 
Benefits. If the Company does not receive from the Insured a written se- 
lection of one of these Benefits before the end of the Accumulation Period, 
or within three months thereafter, it is agreed that the Profits then appor- 
tioned to this Policy shall be converted into an Annual Income for Life, as 
provided in the Second Benefit. 

The Company guarantees that the Entire Cash Value of this Policy at the 

end of the Accumulation Period shall be Dollars, in Cash, and this 

Policy's share of the Accumulated Profits then apportioned, also in Cash. 



ORDINARY ENDOWMENT. 

Twenty-Year-Endowment 
Amount, $10,000 Annual Premium, $521 Age, 35 

. . . .Life Insurance Company of hereby agrees to pay ten thousand 

dollars to Mary Doe (wife of the insured), if living, if not living, to the in- 
sured's executors, administrators or assigns, or to such other beneficiary as 
may be designated by the insured, as hereinafter proyided, at the home 

office of the company in the city of , upon receipt and approval of proofs 

of the fact and cause of death of John Doe, the insured hereunder, provided 
such death shall occur within one year from the date hereof, or thereafter, 
if the insurance shall have been continued by the payment of premiums as 
hereinafter provided. • -\ 

The company further promises to pay ten thousand dollars at its home 
office to the said insured or the legal holder thereof, on the first day of June, 
nineteen hundred and twenty-six, if the insured be living on that date, and 
this policy shall thereupon cease and determine. 
Dated June 1, 1906. 

TWENTY-YEAR ENDOWMENT 5 PER CENT 20-YEAR GOLD BOND. 
Amount, $10,000 Annual Premium, $682.20 Age, 35 

Contract of sale between the .... Life Insurance Company of the United 
States and Richard Roe. Twenty-year 5 per cent gold bond. 

Amount, $10,000 

Whereas, Richard Roe (hereinafter called the purchaser) has suhscribed 
to the .... Life Insurance Company for the 5 per cent gold bond hereinafter 
described; 

Now, therefore, in consideration of the written and printed subscription 
for said bond, hereby made a part of this contract (a copy of which is hereto 
attached) and of the payment in advance of six hundred and eighty-two 



23 



dollars, and of the payment of six hundred and eighty two dollars on or 
before the fifteenth day of January in every year thereafter during the con- 
tinuance of this contract, the said company hereby agrees that on the 
fifteenth day of January, nineteen hundred and twenty-four, upon the. sur- 
render of this contract (provided it is then in force) it will deliver at its 
office a twenty-year 5 per cent registered gold bond for ten thousand dollars 
or a coupon bond for each even one thousand dollars of the said amount in 
the form of the specimen bond hereto attached, to Richard Roe or assigns, 
upon which delivery this contract will terminate. 

And it is further agreed, that the privileges and conditions stated on the 
second and seventh pages hereof form a part of this contract as fully as if 
recited at length over the signature hereto affixed. 

New York, January 15th, 1904. 



NOTE 

The preceding forms are the large type only of the 
policy. The small type contains the conditions and 
appendages. These vary in every company, no two 
companies so far as appears, having uniform con- 
ditions and forms. There are also promises of many 
benefits though it should be understood that no pol- 
icyholder can get more than one of them. 

If he has an investment policy and realizes on his 
investment his life insurance ceases. If he takes the 
endowment his life insurance stops when the endow- 
ment is paid to him. If he takes a cash loan he runs 
the great risk of being forced to take the surrender 
value and pay his loan and lose his policy. 

The only two of these alternatives which are of any 
real value in giving life insurance protection and which 
should have any place in the standard life insurance 
policy, are those which automatically give the holder 
of a level premium policy his term insurance or a paid 
up life insurance for the excess which he has already 
paid. Nine policies out of ten would end better if 
they had stricken out all clauses about a new bene- 
ficiary or cash loans or a surrender value and retained 
only the provision that on the inability or failure to 

24 



pay the premiums when due the policyholder should 
have the option of term or paid up insurance and 
that should this option not be exercised the policy 
should become automatically paid up to an amount 
in proportion to its reserve value. 

The following tables give the cash loans, surrender 
values, term insurance and paid up insurance of one 
of the largest companies. These provisions are dif- 
ferent in every company but one table shows the gen- 
eral plan of them all. The loan and surrender value 
are approximately the same. 

TABLES OF CASH LOANS, PAID-UP INSURANCE, AND AUTOMATIC 
TERM INSURANCE 



I. — The Cash Loan Available at any time on each SI, 000 of this Policy, 
in accordance with the loan provisions on the third page, is set forth in the 
table below, designated "Table I — Cash Loans," and is the sum found in 
the column under the age of the Insured, opposite the number representing 
the full years the Policy has been in force. To ascertain the total Cash 
Loan available, multiply that sum by the number of thousands of dollars, 
and fractions thereof, stated in the first line on the first page. 

Illustration: The cashLoan available on each $1 ,000 of a Policy issued 

at age 30, after the expiration of 8 full years, is $106. The entire 

Cash Loan available, therefore, on a Policy of, say, $2,500, would 

be 2\ times $106, — $265. 
II. — The amount of Paid-up Insurance on each $1,000 of this Policy, 
in accordance with the non-forfeiture provisions on the third page, is set 
forth in the table below, designated "Table II — Paid up Insurance," and is 
the sum found in the column under the age of the Insured, opposite the 
number representing the full years the Policy has been in force. To ascer- 
tain the total amount of Paid-up Insurance, multiply that sum by the num- 
ber of thousands of dollars, and fractions thereof, stated in the first line on 
the first page. 

Illustration: The amount of Paid-up Insurance on each $1,000 of a 

Policy issued at age 30, after the expiration of 8 full years, is $200. 

The paid-up Insurance, therefore, on a Policy of, say, $2,500, would 

be 2\ times $200,— $500. , ..-».. 

III. — The period of Automatic Term Insurance under this Policy, 
in accordance with the non-forfeiture provisions on the third page, is set 
forth in the table below, designated "Table III— Automatic Term Insur- 
ance," and will be found in the column under the age of the insured, oppo- 
site the number representing the full years the Policy has been in force; 
this period, being the same for Policies of any amount, must not under any 
circumstances be multiplied or increased. 

Illustration: The period of Automatic Term Insurance under a Policy 

issued for $2,500 at age 30, would, after the expiration of 8 full years 

be 7 years and 10 months. 

For figures relating to this Policy, take column headed with age , 

the age of the Insured. 

25 



TABLE 1— CASH LOANS 
Based on a Policy of SI, 000 





Age 


Age 


Age 


Age 


A ere 


After 


21 


25 


30 


35 


40 


Expiration of 


or under 










2 Yrs. 


$18 


$21 


$27 


$33 


$42 


5 M 


48 


56 


68 


83 


102 


10 " 


94 


110 


134 


162 


196 


15 M 


149 


173 


209 


251 


299 


20 " 


212 


245 


293 


347 


404 


25 " 


283 


325 


383 


445 


508 


30 M 


362 


411 


476 


541 


605 



TABLE I— CASH LOANS 
Based on a Policy of $1,000 



After 


Age 


Age 


Age 


Age 


Expiration of 


45 


50 


55 


60 


2 Yrs. 


$53 


$66 


$80 


$96 


5 M 


124 


148 


175 


203 


10 " 


235 


276 


318 


360 


15 " 


350 


402 


453 


501 


20 M 


463 


520 


574 


632 


25 '* 


569 


626 


685 


751 


30 " 


664 


724 


788 


855 



TABLE II— PAID-UP INSURANCE 
Based on a Policy of $1,000 



2 Yrs. 


$32 


$34 






$38 


$42 


$47 


5 " 


103 


113 






127 


141 


158 


10 M 


211 


229 






254 


282 


310 


15 " 


323 


349 






384 


420 


456 


20 " 


425 


457 






497 


537 


575 


25 M 


523 


557 






598 


638 


674 


30 " 


612 


646 






686 


723 


756 


2 Yrs. 


$52 




$57 






$62 


$67 


5 " 


176 




193 






209 


224 


10 " 


339 




366 






391 


413 


15 " 


491 




522 






550 


575 


20 " 


610 




641 






668 


698 


25 " 


708 




735 






765 


802 


30 " 


784 




811 






844 


884 



TABLE III— AUTOMATIC TERM INSURANCE AT CORRE- 
SPONDING AGES. 



2 Yrs. 

5 

8 
15 
20 
25 
30 



Yrs. 


Mos. 


1 





3 


10 


8 


2 


12 


6 


15 


11 


17 





16 


9 



Yrs. 


Mos. 


1 


1 


4 


3 


8 


10 


13 


3 


15 


7 


16 





15 


3 



r rs. 


Mos. 


1 


2 


4 


9 


9 


10 


13 


3 


14 


6 


14 


2 


13 


1 



Yrs. 


Mos. 


1 


4 


5 


5 


10 


2 


12 


5 


13 





12 


1 


10 


10 



Yrs. Mos. 



1 

5 

9 

11 

11 

10 

8 



6 
10 
8 
1 

2 
9 



2 Yrs. 

5 
10 
15 
20 
25 
30 



Yrs. Mos. 



6 
8 
7 
5 
1 
1 
11 



Yrs. Mos 
1 4 



5 

7 
7 
7 
6 
5 

26 



Yrs. Mos. 
1 2 



4 
11 

1 
5 
9 



Yrs. Mos. 
11 



5 
7 
9 
3 
2 
11 



CASH LOANS. 

The Insured may obtain Cash Loans on the sole security of this Policy, 
on written request, at any time after it has been in force two full years, if 
premiums are duly paid to the anniversary of the insurance next succeed- 
ing the date when the loan may be obtained. The Insured shall pledge this 
Policy and its accumulations as collateral security for such loans, in accord- 
ance with the terms contained in the Company's then existing form of Policy 
Loan Agreement. The amount of Loan available at any time is stated on 
the second page, and includes loans then unpaid. Interest will be at the 
rate of 5% per annum payable in advnce to the next anniversary, annu- 
ally in advance on that date and thereafter. 

THIS POLICY IS AUTOMATICALLY NON-FORFEITABLE 

AS FOLLOWS 

First — If any premium is not paid on or before the date when due, and 
if there is no indebtedness to the Company, — 

The insurance will automatically continue from such due date as Term 
Insurance as follows, and no longer, namely: for 37 days if premiums have 
been paid for 3 months; for 45 days if for 6 months; for 53 days if for 9 
months; for 60 days if for one year and less than two years; and for the per- 
iod specified on the second page if premiums have been paid for two or more 
years. 

In lieu of such automatic Term Insurance, on the Insured's written re- 
quest within six months from such due date but not otherwise, this Policy 
will be endorsed for the amount of Paid-up Insurance, if any, stated on the 
second page. 

Second — If any premium or interest is not paid on or before the date 
when due, and if there is an indebtedness to the Company, — 

Insurance for the net amount hat would have been payable as a death- 
claim on said due date, will automatica ly continue from said due date as 
Term Insurance for such time as any excess of three-fourths of the reserve 
under this Policy over such indebtedness will purchase at the age of the 
Insured on said due date, according to the Company's present published 
table of Single Premiums for Term Insurance, and no longer. 

In lieu of such automatic Term Insurance, on the Insured's written re- 
quest withki six months from said due date but not otherwise, this Policy 
will be endorsed for such amount of Paid-up Insurance, as said excess will 
purchase at the age of the Insured on said due date, according to the Com- 
pany's present published table of Single Premiums. 



The Automatic Term Insurance and the Paid-up Insurance, as specified 
above, shall be payable under the same conditions as this Policy, but shall 
be without participation in profits, cash loans or further payment of pre- 
miums. 



INSTALMENT BENEFITS. 

The Insured may change the mode of payment of the proceeds of this 
Policy as a death-claim, at any time within five years from the beginning 
of the insurance, if not then assigned, from payment in one sum, as provided 
on the first page, to payments by annual Instalments, as stated below pro- 
vided the amount of such proceeds is One Thousand Dollars, or more. If 
the amount is less than One Thousand Dollars, the proceeds will be paid in 
one sum only. 

The follwing tables are based upon a Policy, the proceeds of which are 
One Thousand Dollars, and will apply pro rata to this Policy. 



27 



LIMITED INSTALMENTS. 



Annual Instalments 
from two to twenty-five 


limited to the number stated below; any number 
may be selected by the Insured. 


Number of Instalments 
Amount of each 
Instalment 


25 | 20 

$56 J $65 


19 

S67 


18 
S70 


17 
S73 


16 

$77 


15 

$81 


14 

$85 


13 
$91 


12 
$97 


Number of Instalments 


11 | 10 


9 


8 


7 


6 


5 


4 


3 


2 


Amount of each 
Instalment 


S104|S113!S124 


S138 


$155 


S179 


$211 


$261 


$343 


$507 



Illustration — The amount of each Instalment will be $65 for each 
$1,000 of proceeds, if payment is to be made by 20 Instalments. 

CONTINUOUS INSTALMENTS. 

Annual Instalments to continue during entire lifetime of Beneficiary, but 
Twenty-five annual Instalments at least to be paid. 

(Payment by continuous Instalments cannot be selected if there is more 
than one Beneficiary under this Policy.) 



Age of Beneficiary 
at Death of Insured 


15 or 
under 


16 


1 
17 18 


19 


20 


21 


22 


23 


24 


25 


26 


27 


Amount of each 
Instalment 


$40 


$4o'$40 


$40 


$40 


$41 


$41 


S41 


$41 


$41 


$42 


$42 


$42 


Age of Beneficiary 
at Death of Insured 


40 


41 


42 


43 


44| 45 


46 


47 


48 


49 


50 


51 


52 


Amount of each 
Instalment 


$48 


S48 


$48 


S4d 


$49 '$50 


$50 


$5ll$51 


$52 


$52 


$52 


S53 



Age of Beneficiary at 
Death of Insured 


28 


29 


30 


31 


32 


33 


34' 35 


36 


37 


38 


39 


Amount of each 
Instalment . 
Age of Beneficiary at 
Death of Insured 


$43 
53 


$43 
54 


$43 
55 


$44 
56 


$44 
57 


$44 
58 


S45 
59 


S45 
60 


$46 
61 


$46 
62 


$47 
63 


$47 
64 or 
over 


Amount of each 
Instalment . 


$53 


$53 


$54i$54 


$54 


$54 


$55 


$55 


$55 


$55 


$55 


$55 



Illustration — The amount of each annual Instalment will be $43 for 
each $1,000 of proceeds, if at the death of the insured the Beneficiary should 
be 30 years of age last birthday. 

The Insured, having changed the mode of payment to annual Instalments, 
may at any time subsequently change the number of Instalments, as may 
be desired, and as above illustrated, or entirely revoke any change, thereby 
making the proceeds of this Policy again payable in one sum. 

The payment of the first Instalment shall be made immediately upon 
receipt and approval of proofs of the death of the Insured, and subsequent 
Instalments shall be paid annually thereafter. 

If the Beneficiary should die before all Instalments have been duly paid, 
the remainder of the Instalments shall be commuted and paid in one sum to 
the Executors, Administrators or Assigns of the Beneficiary. 

Each change of mode of payment, or revocation of any change, must be 
requested by the Insured in writing, and shall not take effect until endorsed 
on this policy by the Company at the Home Office. 

The Beneficiary can neither assign nor commute unpaid Instalments, 
unless such right is given to the Beneficiary by the Insured in writing, and is 
endorsed on this Policy by the Company at the Home Office, during the life- 
time of the Insured. If, however, the proceeds of this Policy or any part 
thereof, are payable to Executors, Administrators, or Assigns, such proceeds 
shall be paid in one sum. 

28 



Conclusion 

All these forms of policy, term, straight life, defer- 
red dividend endowment and gold bond give exactly 
the same insurance protection and pay exactly the 
same sum to the beneficiary in case of death. They 
differ in other respects, in loan values, in surrender 
values, investment features, and payments during 
life, but regarded solely as a life insurance benefit they 
are identical. 

From the life insurance point of view the endow- 
ment and gold bond policies are the worst for their 
life insurance protection terminates automatically at 
the end of the endowment or investment period while 
the renewable or the straight life policy is in 
force as long as the premiums are paid. To what 
extent the investment policies carry out the promise 
of the companies which sell them, the New York 
investigating committee received testimony which is 
included among its exhibits. The results averaged 
hardly half the promises. It could not well be other- 
wise because the expense of management ate into the 
investment returns so that as the Vice President of 
one of the leading New York Companies confessed, 
the policies on a pure investment basis paid less than 
one per cent interest. 

To take a few of these comparisons by companies. 
An Equitable 20 year endowment with an estimated 
cash surplus of $1,566 paid $712; a 20 year deferred 
dividend estimated $1,176 paid $537; a tontine endow- 
ment estimate $1,300 paid $619; another estimate 
$590 paid $327; another estimate $1,176 paid $537. 

The Mutual of New York adopted the deferred 

29 



dividend system later than the Equitable and the 
New York Life and made smaller promises. Its re- 
turns are no better than those of the Equitable and 
the New York, but the discrepancy between its pro- 
mises and its payments is not so great. For a 20 year 
endowment it estimated $658 and paid $424, for a 20 
year deferred dividend it estimated $560 and paid $341 
Other estimates were $504, paid $294; $305, paid $200 ; 
$342, paid $214. 

The New York Life promised on a 20 year endow- 
ment $1,650 and paid $710; on a 20 year deferred div- 
idend $1,143 and paid $527; on a tontine it estimated 
$1,234 and paid $564; on another $954 and paid $390. 

As anyone reading the policy forms will note, these 
estimates are not part of the contract which provides 
that the policyholder is entitled to only what divi- 
dends or investment profits the officials of the com- 
pany choose to apportion to him. The promise is 
made by the agent in separate printed estimates 
which purport to be the experience of other policy- 
holders and which the prospective policyholder is 
assured will be equalled in his case. Whether or not 
the statements are true in regard to the returns some 
policyholders have received, there is no question that 
they do not come true in nine cases out of ten. It was 
even charged that certain policyholders received large 
dividends or results in return for giving certificates of 
what they received, which certificates were photo- 
graphed and reproduced in fac-simile by the hundred 
thousand copies for distribution among the agents 
and for the deception of new policyholders. 

It further appeared that of these investment pol- 
icies less than one half remained to participate in the 

SO 



investment features, the majority dying or lapsing or 
surrendering and receiving nothing at all in return 
for the higher premiums they paid. 

That this evil attaches to all forms of investment 
policy no matter in what company issued and is not due 
solely to the lapses from strict integrity of individual 
insurance managers is proved by the comparison with 
the same forms of policies issued by companies with 
a lower expense rate and with officials whose integ- 
rity has not been attacked. These policies also show 
a uniform discrepancy between the estimates and the 
results. It is impossible that there should be any- 
thing else, because so long as solicitors receive com- 
missions amounting to more than a year's premium 
it is impossible for an investment policy to make re- 
turns comparable with a savings bank. To make the 
competition equal a savings bank should turn over 
all the first year's deposits of every depositor to a sol- 
iciting agent and should in every successive year 
deduct from the deposits and interests anywhere from 
10 to 30 per cent, for the expenses of management. 
If a savings bank were to do this a savings bank 
depositor would be lucky if he got his principal back 
let alone any interest. In a life insurance company 
the average policyholder does not get his principal 
back with interest and if after the exposure of the 
fallacy of investment policies any man buys one he 
deserves the treatment which he will inevitably receive. 



31 



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